Bitcoin and Ether drop as US stagflation fears resurface

The
US
economy
experienced
a
more
significant
cooling
than
anticipated
in
the
first
quarter
of
2024,
with
the
gross
domestic
product
(GDP)
measuring
an

annualized
rate
of
1.6%,
according
to
the
Commerce
Department.
This
marks
the
weakest
pace
of
growth
since
the
second
quarter
of
2022
when
the
economy
contracted,
and
falls
below
the
2.2%
rate
projected
by
economists
in
a
FactSet
poll.

The
slowdown
in
economic
growth
can
be
attributed
to
several
factors,
including
a
sharp
increase
in
imports,
a
decrease
in
private
sector
inventory
investment,
and
a
notable
deceleration
in
government
spending.
Consumer
spending,
which
accounts
for
a
significant
portion
of
economic
output,
also
slowed
earlier
this
year
but
continued
to
fuel
growth
in
the
first
quarter.

The
weaker-than-expected
GDP
reading
has
raised
concerns
about
the
possibility
of
stagflation,
a
combination
of
high
inflation
and
low
economic
growth.
This
scenario
has
led
to
a
decline
in
risk
assets,
with
the
Dow
tumbling
by
500
points
at
the
opening
bell,
the
S&P
500
falling
1.3%,
and
the
Nasdaq
Composite
declining
by
2%.

Despite
the
economic
slowdown,
the
Federal
Reserve
appears
to
be
in
no
rush
to
cut
interest
rates.
Inflation
has
slowed
considerably
over
the
past
year,
but
the
pace
of
its
descent
has
stalled
in
recent
months.
The
Fed
is
likely
to
begin
cutting
rates
once
it
is
convinced
that
inflation
is
under
control
and
on
track
to
reach
its
2%
target.
However,
the
central
bank
could
reduce
rates
sooner
than
expected
if
the
economy
suddenly
falters.

The
latest
GDP
reading
has
dealt
some
damage
to
the
narrative
that
the
US
economy
might
be
overheating,
which
could
shift
the
Fed’s
timetable
for
initiating
the
rate
easing
cycle.

Quincy
Krosby,
chief
global
strategist
at
LPL
Financial,
suggests
that
the
softer
first
read
of
Q1
GDP
could
bring
July
back
into
play
for
the
start
of
rate
cuts.

The
crypto
market,
which
is

sensitive
to
macroeconomic
developments,
has
been
impacted
by
the
renewed
fears
of
U.S.
stagflation.
Bitcoin,
the
leading
cryptocurrency
by
market
value,
traded
near
$62,400
at
press
time,
down
2.5%
on
a
24-hour
basis.
Ether
(ETH)
traded
3%
lower
at
$3,200.

The
market
appears
to
be
balancing
the
threat
of
stagflation
against
potential
bullish
factors,
such
as
a
liquidity
injection
from
the
Treasury
General
Account
(TGA)
and
the
launch
of

Hong
Kong’s
bitcoin
ETFs.
However,
news
that
mainland
Chinese
investors
won’t
be
able
to
trade
the
ETFs
has
somewhat
tempered
the
bullishness
surrounding
the
launch.