US economy may have peaked in Q2, curbing retail investor enthusiasm for crypto: Coinbase

Friday’s Coinbase Weekly market report cited macroeconomic data indicating that the U.S. economy has begun to slow down. The report referenced numerous data points in manufacturing, unemployment, and domestic demand to support this claim.

Some indicators include the U.S. unemployment rate rising to 4.1% in June and the Treasury yield curve being inverted since mid-2022, a historically strong recession indicator.

“We think it’s very likely that the economy peaked in 2Q24 –  one of the reasons we think the Fed will cut interest rates starting September 18, this month is too soon and there’s no August meeting,” Coinbase analysts David Duong and David Han said.

Despite rate-cut optimism, recession indicators remain

The Coinbase analysts added that even though a rate cut should boost markets, it may not be bullish enough for markets if there’s a fear of a more marked slowdown.

“That is, retail investors will likely be reluctant to enter new stock or crypto positions if the U.S. economy falls into recession,” the analysts added.

However, the Coinbase report pointed to the November U.S. elections, which could ignite more fiscal expansion no matter which contender wins. “That’s a strong incentive to buy bitcoin as an alternative to the traditional financial system, in our view,” Duong and Han said.

They added that ether could see a surprise outperformance based on the commencement of spot Ethereum exchange-traded fund inflows.

“Overall though, we believe the next two months are likely to produce more volatility before things start to improve more earnestly in late September,” the analysts said.

Possibly forthcoming economic stimulus in China

China’s National Bureau of Statistics, the nation’s consumer price index (CPI) notched up 0.2% in June. The increase was cooler than inflation readings for the preceding three months and came in below economist’s forecasts of a 0.4% increase.

The lower CPI indicates weak domestic demand, with consumer confidence falling amid the nation’s prolonged property slump and worries about jobs and wages. Recent import data also indicated a weaker domestic market, which hit a four-month low last month, shrinking 2.3% — below forecasts.

These dampening internal market conditions could prompt discussions among Chinese monetary policy officials over the need for economic stimulus to revitalize the nation’s economy. From Monday to Thursday, there will be a major gathering of top officials of the ruling Communist Party of China, called the third plenum of the 20th Chinese Communist Party (CCP) Central Committee.

According to a Chatham House report, the plenum could include an announcement on an economic stimulus package.

“Many international observers have set high expectations for this upcoming plenum, anticipating a sound stimulus package to revitalize China’s sluggish economy in the post-COVID-19 era,” Chatham House Senior Research Fellow on China, Asia-Pacific Programme Dr Yu Jie said.

However, Jie added that any stimulus package will be primarily channeled into the strategic sectors that are geopolitically important for the CCP, that are “unlikely to be policies eagerly waited and favoured by private enterprises and global investors.”