Macro events that will affect crypto prices in February

2024-01-29 03:29:15 ET

The crypto market seems to have hit a rough patch after Bitcoin price recovered from its year-to-date lows. As the market moves towards February, optimism returns and the overall outlook remains that 2024 could be a big year for the industry.

Headwinds that analysts and market experts point to include Bitcoin’s upcoming halving, the steady inflow into spot Bitcoin ETFs and possible regulatory clarity and breakthroughs for the sector.

However, the short-term picture for crypto, stocks and commodities is likely to have an injection of volatility amid the changing macro environment.

Is it,

a) the global economic outlook?

b) central bank policy decisions (US, UK interest rates)?

c) geopolitical tensions? – the volatile situation in the Middle East?

Central bank policy decisions

One of the key events that investors will be keen on this week is the FOMC meeting on January 29th and 30th. While the market expects the Fed to keep interest rates on hold, comments from Federal Reserve Chairman Jerome Powell after the meeting will be key.

With projections for interest rate cuts in the mix, Bitcoin prices rallied in December and early this year — helped by sentiment surrounding the approval of spot ETFs. As low rates favor risk appetite, crypto has done well in such environments.

Currently, the market is pricing in a less than 50% chance of the Fed cutting rates in March. In this context, Powell’s language will give a very strong indication of the central bank’s thinking.

A similar focus will be on the UK’s central bank. With the European Central Bank’s (ECB) recent decision as well as Canada’s in the picture, analysts suggest there could be swings in volatility. A short-term decline as investors adjust their expectations could include a slight pullback for recent stock indexes.

Crypto investors may need to take note of this.

Economic prospects

Tied to the above is the global economic outlook, with US GDP news largely responsible for last week’s rise in stocks. The market welcomed positive economic data showing growth in the fourth quarter of 2023 amid a cooling in prices as core inflation eased year-on-year. But JPMorgan analysts say that while they expect a soft landing for 2024, fiscal spending could become a drag.

Apart from the US, China is also on investors’ watchlist. Noelle Achesson, author of the Crypto Is Macro Now newsletter, recently pointed to China’s economic outlook as a “big deal.”

Unlike the impact on Bitcoin price last week, the analyst says a boost to investor confidence amid a cut to reserve requirement ratio (RRR) and interest rates on bank loans could help risk asset markets.

“Any boost to Chinese investor sentiment could help global risk markets … especially if Hong Kong gets spot BTC ETFs in the next few months,” she noted in a post on X.

Read more here: Global economic data of the week: 29 Jan – 2 Feb 2024.

Geopolitical tensions

The geopolitical situation also puts the short-term outlook in the spotlight. In a recent interview with Bloomberg TV, economist Mohamed El-Erian, despite anticipating a soft landing for the US economy, inflation and geopolitical turmoil could be a challenge.

His comments came as the Middle East remains a volatile environment, with escalating attacks in the Red Sea and a deadly attack on US troops in Jordan. Oil prices rose on Monday after the missile attack as fears of an escalation grew.

El-Erian said the potential for the situation to affect supply chains and shipping costs are real threats that could hit the markets. He added in a post on X that the US being drawn into the tragedy in the region could have an impact.

Closure

U.S. stock futures fell early Monday as investors turned their attention to the slew of events and reports this week. Bitcoin hovered just above $42k while most altcoins were just trading in the red.

Stocks are likely to react to earnings reports from tech giants such as Microsoft, Apple, Meta, Alphabet and Amazon, as well as FOMC, geopolitical developments and overall economic outlook.

While most of these may have an impact beyond the next few weeks, it is likely that these macro factors will also impact the crypto market in some way.

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