Bitcoin Drops 1% as US Economy Shrinks 0.3%

Recent economic data from the United States has shown signs of weakness, which may prompt the Federal Reserve to adopt a more dovish stance. This shift in monetary policy could potentially benefit Bitcoin and other cryptocurrencies. On Wednesday, following the release of US macroeconomic data, Bitcoin experienced a brief decline, falling below the $94,000 mark with an intraday drop of 1%. Ethereum, Solana, and other major altcoins also saw synchronized declines, leading to a nearly 4% contraction in the total cryptocurrency market capitalization.

The US economy contracted by 0.3% in the first quarter, falling short of the expected growth of 0.2%. Additionally, the year-on-year core Personal Consumption Expenditures (PCE) index for March rose by 2.6%, aligning with expectations but below the revised value of 3.0% in February. Furthermore, ADP nonfarm payrolls added only 62,000 positions in April, a significant decrease from the 147,000 positions added in March.

David Hernandez, a crypto investment expert, noted that Federal Funds futures now indicate that the market expects the Fed to cut interest rates more than four times this year. He emphasized that policymakers will face a delicate balancing act as they navigate signals of slowing inflation and economic recession, which will be crucial in determining market trends in the coming weeks.

Kirill Kretov, a senior automation expert, believes that interest rate cuts could benefit Bitcoin through three mechanisms: a weakening US dollar, improved liquidity, and a decline in bond yields. He pointed out that the -0.3% GDP data, combined with increased pressure from the President, significantly raises the probability of a policy shift towards dovishness. In the current context of thin Bitcoin liquidity, even mild inflows of funds could potentially drive prices significantly higher. The market generally anticipates that weak economic data may force the Fed to initiate an easing cycle earlier than expected.