{"id":302854,"date":"2023-02-27T20:31:45","date_gmt":"2023-02-27T20:31:45","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=302854"},"modified":"2024-02-14T03:37:27","modified_gmt":"2024-02-14T03:37:27","slug":"research-bitcoin-risk-on-assets-under-short-term-pressure-as-macro-narrative-flips","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/research-bitcoin-risk-on-assets-under-short-term-pressure-as-macro-narrative-flips\/","title":{"rendered":"Research: Bitcoin, risk-on assets under short-term pressure as macro narrative flips"},"content":{"rendered":"<p>Bitcoin and other risk-on assets are under short-term pressure as the macro narrative flips from recession to sticky, entrenched inflation.<\/p>\n<h2>Sticky inflation<\/h2>\n<p>Markets are braced for an imminent recession. However, current macro analysis suggests a recession may not be coming, at least not in the short term. Instead, analysts expect a period of sticky, entrenched inflation.<\/p>\n<p>On Feb. 24, the U.S. Bureau of Economic Analysis (BEA) released <a href=\"https:\/\/cryptoslate.com\/insights\/bitcoin-holds-just-under-24k-dxy-breaks-105-for-the-second-time-this-year-as-pce-comes-in-hotter-than-expected\/\">Personal Consumption Expenditure (PCE)<\/a> data for January, showing an actual rate of 4.7%, much higher than the expected rate of 4.3%.<\/p>\n<p><a href=\"https:\/\/www.bls.gov\/osmr\/research-papers\/2017\/st170010.htm\">PCE<\/a> measures the price of goods and services, similar to the Consumer Price Index (CPI), but differs by sourcing data from businesses as opposed to consumers, as is the case with CPI.<\/p>\n<p>Although Year-on-Year CPI data shows inflation coming down, thus conflicting with PCE data, the U.S. labor market remains hot with a 50-year low in unemployment and spiking wage growth &#8211; suggesting inflationary pressures remain.<\/p>\n<figure id=\"attachment_302863\" aria-describedby=\"caption-attachment-302863\" style=\"width: 1164px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-302863 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/cpi-vs-fed.jpg\" alt=\"CPI and Fed rates\" width=\"1164\" height=\"487\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/cpi-vs-fed.jpg 1164w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/cpi-vs-fed-300x126.jpg 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/cpi-vs-fed-1024x428.jpg 1024w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/cpi-vs-fed-768x321.jpg 768w\" sizes=\"(max-width: 1164px) 100vw, 1164px\" \/><figcaption id=\"caption-attachment-302863\" class=\"wp-caption-text\">CPI and Fed rates<\/figcaption><\/figure>\n<p>The upshot of this is likely further hawkishness from the Fed, which stated that its primary goal is to bring inflation down to 2%.<\/p>\n<p>In turn, should higher inflation become the dominant narrative, the effect could see price pressure on Bitcoin, and other risk-on assets, as disposable income gets squeezed to keep pace with the price of essentials.<\/p>\n<h2>Fed funds rate on the rise<\/h2>\n<p>Fed funds futures data previously pointed to growing confidence within the interbank lending market. However, recent movements show this narrative has flipped.<\/p>\n<p><a href=\"https:\/\/www.investopedia.com\/terms\/f\/fed-funds-futures.asp\">Fed funds futures<\/a> refer to derivatives based on the federal funds rate &#8211; the lending rate charged by banks (to other banks) for overnight lending.<\/p>\n<p>The chart below shows Fed funds futures for September 2023, December 2023, and December 2024 have adjusted higher. A higher rate across the board suggests banks lack confidence in lending to other banks &#8211; meaning interbank borrowing becomes more expensive.<\/p>\n<figure id=\"attachment_302870\" aria-describedby=\"caption-attachment-302870\" style=\"width: 1834px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-302870 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/fed-funds.png\" alt=\"Fed funds futures\" width=\"1834\" height=\"1019\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/fed-funds.png 1834w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/fed-funds-300x167.png 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/fed-funds-1024x569.png 1024w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/fed-funds-768x427.png 768w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/fed-funds-1536x853.png 1536w\" sizes=\"(max-width: 1834px) 100vw, 1834px\" \/><figcaption id=\"caption-attachment-302870\" class=\"wp-caption-text\">Source: TradingView.com<\/figcaption><\/figure>\n<p>Like persistent inflation, a higher Fed funds rate will create downward pressure on risk-on assets as banks clamp down on borrowing to limit their exposure.<\/p>\n<h2>Keeping rates higher for longer<\/h2>\n<p>The interest paid on federal government debt is approaching $1 trillion. The chart below shows interest payments almost doubling since 2020.<\/p>\n<figure id=\"attachment_302875\" aria-describedby=\"caption-attachment-302875\" style=\"width: 1502px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-302875 size-full\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/interest.jpg\" alt=\"\" width=\"1502\" height=\"946\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/interest.jpg 1502w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/interest-300x189.jpg 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/interest-1024x645.jpg 1024w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/interest-768x484.jpg 768w\" sizes=\"(max-width: 1502px) 100vw, 1502px\" \/><figcaption id=\"caption-attachment-302875\" class=\"wp-caption-text\">Source: fred.stlouisfed.org<\/figcaption><\/figure>\n<p>50% of 2022's $1.5 trillion discretionary budget was spent on the military, with the next most significant slice, at 8%, allocated to Veterans' Benefits totaling $115 billion.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-302876\" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/2022.png\" alt=\"\" width=\"680\" height=\"382\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/2022.png 680w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2023\/02\/2022-300x169.png 300w\" sizes=\"(max-width: 680px) 100vw, 680px\" \/><\/p>\n<p>Keeping interest rates higher for longer would make it more difficult to service existing debts &#8211; this puts the Fed in a tough spot regarding seeing things through to a 2% inflation rate.<\/p>\n<p>The updated predicted terminal interest rate now comes in at <a href=\"https:\/\/cryptoslate.com\/insights\/wall-street-is-now-pricing-in-another-25bps-after-hot-pce-data-btc-breaks-below-23k\/\">5.25% -5.50%<\/a>, giving leeway of 75 basis points from the current rate.<\/p>\n<p>The next FOMC meeting is scheduled to conclude on March 22. Presently, economists are 70% in favor of a 25 basis point hike, with the remaining 30% expecting a 50 basis point hike.<\/p>\n<p>Meanwhile, risk-on assets, including Bitcoin, now face short-term downward pressure as inflation and dwindling risk appetite among banks provide headwinds against price appreciation.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Bitcoin and other risk-on assets are under short-term pressure as the macro narrative flips from recession to sticky, entrenched inflation. Sticky inflation Markets are braced for an imminent recession. However, current macro analysis suggests a recession may not be coming, at least not in the short term. Instead, analysts expect a period of sticky, entrenched [&hellip;]<\/p>\n","protected":false},"author":460,"featured_media":303158,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[77968,77921],"tags":[],"prediction_market_topic":[],"post_folder":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v21.9 (Yoast SEO v21.9.1) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Research: Bitcoin, risk-on assets under short-term pressure as macro narrative flips<\/title>\n<meta name=\"description\" content=\"The macro narrative flips from recession to entrenched, sticky inflation creating headwinds for Bitcoin price appreciation.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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