Reason why crypto markets are starting to move

It’s risk-on again with crypto markets starting to make big moves as of the time of writing. The reason for this all comes down to inflation expectations. This week’s US CPI (consumer price index) and PPI (producer price index) both came in below expectations.

One month’s number doesn’t mean the end to inflation, but the fact that both CPI and PPI came in below has many wondering if this is the start of inflation’s downward spiral. Keep in mind that this week’s inflation follows last week’s worse than expected US jobs report, where only 209k jobs were created, down from the mid 300k range in prior months.

Interest rates have been rising for the past year and a half. They are finally starting to have an impact. The bond market has been wild in recent months, but is again pricing a peak in inflation. There are questions now whether the US Fed will raise again or halt to assess the impact.

This all means that risk is back on and when risk is on, the riskiest assets that have fallen the most start to move the hardest. We’ve already seen a huge rally in Bitcoin over recent months, now forming a base at $30k. Solana and XRP’s (subject to court proceedings) moves have been similarly large over the past 24 hours (listen to my crypto comments from last month)

The problem with crypto is by the time you read this, the market could be back down. It’s a wild casino. But casino trends are important to watch and understand. Some people like to play at the casino, others don’t. Each to their own.

My interest in crypto is purely due to liquidity and expectations about real estate market. It feels that things could have shifted this week and if we see more weakness next week, it will be hard to put a lid on the risk-on trade for the next few weeks.

The Fed was expected to raise at its July 26-27th meeting, but bets are being reassessed. If they stay on hold again, it’s a big sign that they have talked enough and now sitting back to assess the damage from high rates on the economy and jobs market in particular.

Peter Esho is an economist and Founder of Esho Group. He has 20 years of experience in investments and markets.