Bitcoin and Altcoins Fail to Rally Despite Cooling US Inflation
According to Cointelegraph, analysts have long predicted that a decrease in inflation would benefit the crypto market. However, prices are still down, leaving many wondering what's going on.
Interest Rate Cuts: A Double-Edged Sword
The Federal Reserve's interest rate cuts can have both positive and negative effects on the cryptocurrency market. On one hand, lower interest rates can increase investors' risk appetite, making high-growth assets like cryptocurrencies more attractive. On the other hand, a strengthening US dollar (measured by the US Dollar Index or DXY) can make cryptocurrencies less appealing.
The U.S. Dollar's Impact
Currently, the DXY is flirting with 106, its highest level since November 2023. This suggests that investors are confident in a "soft landing" scenario, where inflation decreases without an economic recession. As a result, traders may expect the stock market to continue reaching new highs without significant shock in the real estate market.
The Cryptocurrency Market's Underperformance
Despite cooling inflation and interest rate cuts, the total cryptocurrency market capitalization is down from its 2024 peak on March 14. Bitcoin (BTC) and other cryptocurrencies are also failing to rally. This underperformance can be attributed to the strengthening US dollar, which makes it less likely for investors to flock to high-risk assets like cryptocurrencies.
Conclusion
While a decrease in inflation might not have had the expected impact on the cryptocurrency market, it's essential to remember that there is still uncertainty surrounding how the economy and the US dollar will behave if the Fed opts for an expansionary monetary policy. Therefore, a rally for Bitcoin and cryptocurrencies later in 2024 should not be ruled out.
What do you think about this? Share your thoughts and comments below!
