Bitfinex Alpha | Mixed Economic Data Pushes Crypto Markets Towards a Lull

As we survey the markets this week, mixed US economic data continues to emerge as crypto markets begin to look like they are entering a summer lull. We also begin to see strains in Europe, with Germany entering into a recession.

In the US, the Bureau of Labor Statistics revealed bullish data showing 339,000 new jobs added in May, painting the picture of a resilient economy in the face of rising borrowing costs. The widely predicted US recession may still be distant. However, challenges exist: unemployment continues to rise, and wage growth is slowing.

The latest Beige Book report, which analyses more localised economic activity, showed that while spending on leisure, hospitality, healthcare and education continues, economic activity in the transportation and agriculture sectors is softening. There continue to be concerns too about liquidity in the financial sector and increasing credit risk in the commercial real estate sector.

Consumer confidence has also declined to its lowest level in six months, as reported by The Conference Board, but April data from the Bureau of Labor Statistics show that job openings continue to increase and that layoffs are decreasing. 

Markets will also be relieved with news over the weekend that President Joe Biden signed legislation lifting the national debt ceiling, averting an unprecedented default on the federal government’s debt. 

However, Germany regarded as the economic powerhouse of Europe, has entered a state of recession. The ongoing conflict between Russia and Ukraine, the enduring effects of the global pandemic, rising interest rates and Germany’s lack of substantial investment in innovative sectors have contributed to two consecutive quarters of negative economic growth – with a third expected in the current quarter. Where Germany goes, the rest of Europe usually follows.

In crypto markets, Bitcoin mining activity is expanding sharply as more miners compete to secure the network. The BTC mining difficulty has risen to 51.23 trillion as of the bi-weekly adjustment on May 30th, indicating an increase of more than 2.7 percent in the difficulty that individual miners encounter as they endeavour to unearth a Bitcoin block.

But BTC markets are lagging equities. While the Nasdaq is up 7.3 percent in May, BTC is down 6.94 percent. Furthermore, the options market is indicating that the current low volatility environment could be prolonged. Traders are hedging their bets and waiting for macro newsflow to determine direction.

Newsflow from the crypto industry continues to be mixed. The SEC has filed lawsuits against both Gemini and Genesis, for allegedly offering securities; and Binance confirmed that it is conducting a talent evaluation and reassessing its headcount after speculation of significant layoffs. 

But growth and expansion in the industry continue too. Tether announced it is entering the Bitcoin mining industry in Uruguay using renewable energy sources, and Hong Kong is allowing retail trading of crypto assets and is reviewing applications for licences by trading platforms and exchanges, as it seeks to establish itself as a crypto hub 

The economic landscape is as diverse as it is dynamic, with sectors experiencing growth, others facing challenges, and some undergoing significant changes. As we move forward, it will be interesting to see how these trends evolve and what impact they will have on the broader economy.

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