Cryptocurrency analysis firm QCP has published a comprehensive report addressing the latest situation in Bitcoin and the general cryptocurrency market. The report highlights some key economic indicators and policy decisions that can significantly impact the market.
The report begins by highlighting some alarming data from the United States. GDP in the USA grew by only 1.6% in the first quarter of 2024 compared to the previous quarter, remaining below the expectation of 2.5%. Meanwhile, Core Personal Consumption Expenditures were above the expectation of 2.6% at 2.8% annually, and Personal Consumption Expenditures were above the expectation of 2.6% at 2.7% annually.
According to QCP, these figures point to a more stagnant economy and an inflation problem that continues to trouble the FED. If GDP continues to weaken and inflation remains sticky, the United States could enter a stagflation scenario (negative GDP growth and high inflation). However, QCP explains that this is not the base scenario yet.
In light of this data, markets are currently pricing in a single interest rate cut in 2024, according to the report. This is a far cry from the seven discounts priced at the beginning of the year and the three in March.
The report then focuses on fiscal policy, which QCP believes will be a key driver of liquidity and asset performance. The US Treasury General Account (TGA) now holds close to US$1 trillion in assets following this year's massive US treasury issuances and strong tax revenues.
QCP suggests that the US Government could choose to spend the money in the NPL, potentially injecting $1 trillion in liquidity into the financial system. According to the report, this probability is high given the closeness to the US elections.
Additionally, the Quarterly Refunding Announcement (QRA) on May 1 may see higher issuance in short-term US bonds.
QCP is reminiscent of how Yellen previously used the QRA to influence short-term interest rates in October 2023, leading to second-half bond yields peaking at 5.2% and a subsequent rally in stocks. It is very likely that he will repeat this action to some extent, according to analysts.
According to the report, a potential liquidity of $1.4 trillion is ready to be injected between the US Treasury General Account (TGA) and the Reverse Repo Fund. This could be the main driver of the rise towards the end of the year.
*This is not investment advice.