- With few idiosyncratic crypto catalysts up ahead, macro events are set to have a large influence on prices in the short term.
- The macro situation seems to be improving in the US and in the Middle East.
- Crypto traders will likely keep a close eye on Wednesday’s inflation print.
Crypto investors shouldn’t be shy about buying the dip.
That’s according to Quinn Thompson, founder of hedge fund Lekker Capital, a firm that specialises in using macroeconomic analysis to invest in crypto.
“Find a way to remove the emotion and position for what the market is going to care about next month (Fed liquidity), not last month (recession/growth scare),” Thompson posted on X.
”The market is a bit asleep at the wheel here,” he added.
Inflation and the Fed
Last Monday’s bloodbath was partially caused by fears that the Federal Reserve has kept financial conditions too restrictive for too long, and that the US was on the verge of entering a recession.
That means Wednesday’s consumer price index report is likely to take the spotlight this week, according to Coinbase analysts David Duong and David Han.
Investors will be looking for signs that inflation is slowing down, which would further confirm that the Federal Reserve is finally ready to cut rates.
“Given the absence of idiosyncratic catalysts for crypto in the next few weeks, we think macro dominance could continue,” the Coinbase report said.
By keeping interest rates high, the US central bank is incentivising investors to buy government bonds to earn a solid risk-free yield.
When interest rates are lower, however, investors tend to seek out returns in risk-on assets, like Bitcoin and tech stocks.
Investors are assigning 100% odds that the Federal Reserve will cut rates in September, per FedWatch data, with a 45% chance of seeing an aggressive 0.5% cut.
“We’ve been in an environment of slowing growth and restrictive monetary policy, a major headwind,” Thompson said.
“I don’t expect we will see more weakness” as the financial environment changes, he added.
Conflict in the Middle East
Thompson also dismissed fears of conflict escalation in the Middle East.
“There seems to be a hesitancy to rebuy ahead of the potential for war” between Israel and Iran, he said. “The problem with this view is its consensus and all over the headlines.”
Thompson argued that Iran would prefer for Vice President Kamala Harris to win the election this year instead of former President Donald Trump — since the latter reimposed sanctions on Iran during his tenure.
“Starting a large-scale war and spiking oil prices is not in their best interests,” Thompson said.
Tom Carreras is a markets correspondent at DL News. Got a tip about crypto and macro? Reach out at tcarreras@dlnews.com
