Bankless: What triggered this round of crypto market rally?

Author: Jack Inabinet, Bankless; Compiler: Deng Tong, Golden Finance

This morning, crypto assets took a break from key inflation signals for April. What do these data show? Why are markets interpreting them as buy signals?

While the Producer Price Index (PPI) released on Tuesday showed slightly higher-than-expected inflation last month, today's Consumer Price Index statistics were in line with analyst expectations.

Inflation remains sticky, still above the Fed's long-term 2% target, but this is the first decline in the CPI in nearly three months; At the same time, the market is showing increasing signs of stagnation.

While the month-to-month fluctuations in inflation data are accompanied by a fair amount of noise, it is clear that deflation is continuing as rising prices weigh on the demand part of the economy.

After the data was released, the market began to price in an increased likelihood of rate cuts in response to the economic downturn, causing US Treasury yields to fall back to March highs and indicating that traders are actually positioning for these inevitable rate cuts.

Deflation may exist, but has not yet reached worrying levels, allowing market participants to operate on the assumption that future rate cuts are undoubtedly bullish, as they will reduce the risk-free rate and theoretically enhance the relative attractiveness of risky assets.

With further confirmation of the future downward path of interest rates, market participants slammed the buying of crypto assets, causing the price of Bitcoin to rise by 7% on the day; BTC successfully broke the downward trend that had hindered prices since April and broke through the weekly resistance level of $65,000!

Unlike range-bound crypto assets, traditional stocks have been steadily climbing over the past two and a half weeks, allowing today's Consumer Price Index (CPI) to provide the needed momentum for stock indices to hit new all-time highs!

Both the S&P 500 and the tech-heavy Nasdaq 100 breached highs set at the U.S. cash market open in March and rallied along with other risk assets throughout the morning.

The Federal Reserve can exert significant pressure on the short end of the interest rate curve, but fundamentally, these rates are priced in a mix of future growth and inflation expectations.

While many market participants generally agree that lower rates are good for risk assets, they are only one factor in the broader economic equation, and it remains highly doubtful that rate cuts will be enough to stimulate faltering growth, given that rock-bottom interest rate levels have coincided with recession peaks in past cycles.

In the absence of a clear catalyst for growth, monetary and fiscal policymakers may again resort to currency debasement, and while the actual economic impact of such actions is uncertain, they will almost certainly boost the dollar value of hard assets that are insulated from inflationary fiat schedules, such as Bitcoin and gold.