In this episode of “Macro Markets” by Cointelegraph, analyst Marcel Pechman delves into the underperformance of the cryptocurrency market in the face of a thriving stock market. This performance difference has been primarily attributed to the recent aggressive monetary policy by the U.S. Federal Reserve.
Our journey through Episode 13 begins with an analysis of the Fed’s recent decisions’ impact on the stock market surge. Pechman points out that there was skepticism in the market about whether the Fed could maintain interest rates above 5% throughout 2023, given the looming threat of economic downturn. However, market predictions missed the mark.
Pechman observes that the U.S. government’s signals show a lack of fear of unemployment or diminished corporate profits, provided inflation remains under control. The primary drivers for the U.S. stock market rally, therefore, seem to be the unfounded fear of interest rate hikes by the Fed and the latest macroeconomic data, reporting 4% inflation and 1.6% retail sales growth.
On the other hand, Pechman asserts that the current regulatory environment is particularly unfavorable for cryptocurrencies. He notes that the two major risks for the U.S. dollar – the debt ceiling and unchecked inflation – have both eased. Given the weak real estate market, Pechman suggests that investors are likely to continue favoring stocks in the near future.
The conversation shifts to the European Central Bank (ECB), which has hiked interest rates for the eighth consecutive time. According to Pechman, the ECB has not been as aggressive as the U.S. Federal Reserve and is now trying to compensate with a 3.5% basic interest rate.
Pechman breaks down the mechanics of credit default swaps, highlighting the disparity in risk between the U.S. and European markets. His prognosis? The U.S. dollar might retain its prime reserve status longer than anticipated. However, the future seems uncertain for the euro, with Europe already experiencing a technical recession after two successive quarters of negative growth.
Investors should consider these dynamics while navigating financial markets. The effects of central bank policies can ripple through various sectors and asset classes, including stocks and cryptocurrencies. Monitoring key macroeconomic data, such as inflation and retail sales growth, and central bank decisions can help investors make more informed decisions about their portfolios.
While the current regulatory environment may seem unfavorable for cryptocurrencies, the landscape is continually evolving. Regulatory clarity could lead to more institutional adoption of cryptocurrencies, potentially enhancing their performance in the future. Therefore, investors should monitor regulatory developments closely and understand how they may impact their cryptocurrency holdings.
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