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- Markets expect the Fed’s interest rate cuts to begin in June-July 2024.
- The Fed needs more hard data on inflation and employment to reduce its interest rates.
- Monthly returns on BTC and ETH rose over 40% in February, with prices approaching $63K and $3.5K, respectively.
- Positive March scenarios include BTC at $70K-$72K and ETH at $3.6K-$4K.
- The current rally is driven by spot ETF inflows, the return of retail investors, and high hopes for Ethereum’s upgrade and ether ETFs.
- Liquidity on crypto exchanges shifted toward US-based venues, indicating higher local demand.
- Dencun should support the ETH price by making the network more efficient, scalable, and secure.
A growing number of economists suppose the Fed’s interest rates are too restrictive, according to a February survey by The National Association for Business Economics (NABE). However, forecasters have revised their 2024 economic growth projections to the upside, expecting a 2.2% annual rise.
February was marked by slower growth and employment in the US services sector. Still, inflation figures show higher stubbornness than the Fed had hoped, likely shifting the rate cuts to the second half of 2024.
US inflation
PCE estimates for February are due on March 29, with the Cleveland Fed expecting +0.23 MoM and +2.72 YoY for the core index. The January figures proved the forecasters right. The core PCE rose 2.8% YoY and 0.4% MoM, compared to 2.9% YoY and 0.1% MoM a month prior.
Thus, prices rose markedly on a monthly basis, echoing the January CPI. The core CPI increased 0.4% MoM, above expectations, with +3.9% YoY.
The February CPI data (due on March 12) is expected to show relatively high monthly inflation, according to the Cleveland Fed’s newscasting (+0.43 headline and +0.32 core). Subsequently, it should trend lower in March.
US labor market
Forecasters surveyed by the Wall Street Journal and Dow Jones Newswires expect February’s jobs report (due on March 8) to show employers’ reluctance to expand payrolls. The projected 198,000 new jobs would constitute a notable moderation from 353,000.
Growth in nonfarm payrolls in January dramatically surpassed projections of just 187,000. While the unemployment rate could remain constant at 3.7%, a survey by The Institute for Supply Management suggests that labor shortages remain, revealing upbeatness among business owners.
Another hot jobs report may prompt the Fed to keep the rates higher for longer. Tim Quinlan, senior economist at Wells Fargo, suggests that despite the “easing of price pressure and moderation in hiring,” the Fed “will ultimately want to see these developments translate to the hard data on inflation and job growth.”
FOMC meeting on March 20
The Federal Open Markets Committee meeting is expected to keep the interest rates static at 5.25–5.5%. Markets do not expect cuts until the second half of the year — June or July 2024 (roughly 70% and 90% probability, respectively, per CME FedWatch).
The expected three to four cuts may result in just over 4% by year’s end. Participants in the March meeting will update the Summary of Economic Projections, which the markets will watch closely.
The minutes of the previous meeting, released on February 21, mention members’ judgment “that the policy rate was likely at its peak for this tightening cycle.” However, they wanted to gain “greater confidence that inflation was moving sustainably toward 2 percent.”
Bitcoin’s rapid growth
February was highly positive for Bitcoin. The monthly returns soared by over 43%, dramatically exceeding the average (+15.66%). Between February 2023 and February 2024, the BTC price rose by over 200%.
The coin ended the month close to $63K, a level last seen in November 2021. Some analysts suggest buyers may persevere until the coin retests its all-time high above $69K. As of March 6, BTC is at $66,860.92, up 55.5% over 30 days and 198.3% YoY.
EarnBIT’s projections for BTC in March
Positive scenario: $70K-$72K target
Negative scenario: return to $53K-$55K
Ether’s impressive rally
Like Bitcoin, ether had a stellar month with +46% in monthly returns, compared to +17.13% on average. The price peaked at $3.5K on February 29.
With $2.1B worth of ETH moved to long-term storage, it could maintain the upward trajectory for the rest of the quarter. On-chain data reflects an inclination to long-term investment rather than quick profit-taking. As of March 6, ETH is at $3,816.34, up 65.5% over 30 days and 144.1% YoY.
EarnBIT’s projections for ETH in March
Positive scenario: $3.6K-$4K target
Negative scenario: return to $2.7K-$3K
Inflows into spot Bitcoin ETFs
Capital inflows into spot Bitcoin ETFs reached a new monthly high, outpacing the market supply of the coin. Collectively, the funds earned around 12% of February’s net ETF inflows, coming in 4th among all categories.
Spot Bitcoin ETFs have inhaled $8.7B in less than two months — despite a 1% market share. The capital mainly came from hedge funds, retail investors, and financial advisors, who have piled into the funds at a historic clip since their January 11 launch.
Return of retail investors
February was marked by a resurgence of interest from mom-and-pop investors. As noted by JP Morgan analysts, it was pivotal to the crypto rally, helping Bitcoin and ether reach multi-year highs.
Coinbase Global, the largest US crypto exchange, recorded a 60% YoY rise in net consumer transaction revenue in Q4 2023. Small-scale, individual investors have a growing confidence in crypto as an investment option.
The exuberance around the spot Bitcoin ETFs and the anticipation of the Bitcoin halving play a major role. Check out our in-depth guide to Bitcoin halving 2024 for an overview of price projections.
Strong demand for BTC in the US
In February, Bitcoin became more accessible to trade on US-based crypto exchanges, as opposed to those overseas. The most pronounced positive price action marked US trading hours.
On average, local trading venues accounted for nearly 50% of bids and asks within 2% of BTC’s mid-price globally. Last year, overseas platforms boasted the lion’s share of market depth by that metric. This change reflects a tectonic shift supported by the Bitcoin ETF frenzy.
High hopes for Ethereum’s Dencun and ETFs
Ether’s price rally was fueled by the anticipation of its March upgrade, as confirmed by a Grayscale report. Dencun represents a big step forward for the network, enhancing speed, scalability, and fees (more on this below).
Secondly, the SEC may greenlight the first spot ether ETFs as early as May. Like Bitcoin-linked counterparts, they will provide exposure to the underlying coin without direct ownership. The regulator has delayed its verdict on applications from BlackRock and Fidelity twice, with one more delay allowed before a final decision.
Ethereum’s Dencun upgrade
On March 13, the Ethereum team is scheduled to launch the Cancun-Deneb (Dencun) upgrade designed to boost network efficiency, security, and agility. It should also reduce its notorious gas fees, creating a more seamless experience for users and developers.
Proto-danksharding will divide the blockchain into blobs — bits of data small enough to keep disc use manageable. These chunks will enable parallel processing of transactions and smart contracts for higher capacity and cheaper use.
Other enhancements include higher data storage efficiency and interoperability with Layer-2 blockchains. Upgrades to the consensus layer will make the network more secure, refining its PoS algorithm. Meanwhile, the ETH price may get an additional boost.
Jerome Powell’s speech
The head of the Federal Reserve will update Congress on its anti-inflation progress via a monetary policy report and live testimonies — before the House Financial Services Committee on March 6 and the Senate Banking Committee on March 7. Analysts expect him to stress the importance of proceeding cautiously with interest rate cuts.
The Democrats will likely push Powell to explain why the cuts have not been started. Senator Elizabeth Warren told Barron’s, “The Fed’s sky-high interest rates are driving up costs for working families and putting affordable housing out of reach for too many Americans. It’s time for the Fed to cut interest rates to lower costs.”
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