In the cryptocurrency world, we often see some data indicators appearing in news information together with the ups and downs of the market. It seems that the changes in these data indicators are the ups and downs of the market. These data indicators include: US stock VIX index, interest rates, CPI, NFP, US dollar index, etc.
In fact, as Bitcoin becomes more and more closely associated with the traditional world, it is increasingly influenced by the traditional world. Some economic and monetary numerical indicators in the traditional world almost determine the short-term or long-term rise and fall of Bitcoin to some extent.
So how do these data indicators affect the rise and fall of Bitcoin, and what is the logic behind it? How should we use these data indicators to predict the rise and fall of Bitcoin and the cryptocurrency world in the future?
Central bank interest rates and balance sheet shrinkage/expansion
The monetary policies of the world's three major central banks: the Federal Reserve, the European Central Bank, the Bank of England, as well as the central banks of major economies such as Japan and Canada, are almost decisive for the bull-bear transformation of the cryptocurrency market. We take the Federal Reserve as an example to interpret monetary policy. The two most important points in monetary policy are interest rate changes (interest rate hikes/interest rate cuts) and changes in balance sheets (balance sheet reduction/balance sheet expansion).
1. Federal Reserve interest rate
The Federal Reserve (Fed) influences short-term borrowing costs in the market through the federal funds rate. This rate is set by the FOMC (Federal Open Market Committee) and is the benchmark interest rate for overnight interbank lending. The Federal Reserve holds eight interest rate meetings each year, once every quarter.
The main role is to determine the cost of funds and liquidity level, which in turn affects consumption, investment and economic growth. An interest rate hike usually indicates an overheated economy or inflationary pressure, while a rate cut indicates a weak economy that needs to be stimulated.
Main focus: interest rate decisions and dot plots, pay attention to the FOMC meeting statement and officials' interest rate forecasts; liquidity indicators, such as the Federal Reserve's reserve balance, the repurchase market rate (SOFR), TGA account changes, etc.
Related data: Treasury yields, especially the 10-year U.S. Treasury yield, indirectly reflect market expectations for economic prospects and inflation; macroeconomic data, such as CPI, PCE, employment data, etc., will also affect the Fed's policy decisions.
2. Balance sheet reduction and expansion
Balance Sheet Reduction (Quantitative Tightening, QT): refers to the Fed gradually reducing the size of its balance sheet by no longer rolling over maturing assets or actively selling assets, thereby recovering market liquidity; balance sheet reduction directly recovers market liquidity and may trigger a sell-off of risky assets. However, the Fed recently announced that it would slow down the pace of balance sheet reduction from April (the upper limit of Treasury bond reduction was reduced from 25 billion to 5 billion US dollars). This "implicit easing" may ease liquidity pressure and provide short-term support to the currency market. It is necessary to pay attention to whether balance sheet reduction will lead to an inversion of the U.S. Treasury yield curve or an increase in term premium, which may trigger cross-market fluctuations and indirectly affect cryptocurrencies.
Balance Sheet Expansion (Quantitative Easing, QE): refers to the Federal Reserve's expansion of its balance sheet through large-scale purchases of Treasury bonds and other securities to inject liquidity into the market and reduce borrowing costs. Balance sheet expansion is usually accompanied by a flood of market liquidity, driving funds to non-traditional assets such as Bitcoin. Historically, the large-scale balance sheet expansion after the 2020 epidemic has boosted the Bitcoin bull market.
3. How will it affect the cryptocurrency market?
Impact on liquidity and risk appetite
Interest rate cuts/balance sheet expansion: usually means increased market liquidity, lower capital costs, risky assets (including cryptocurrencies) may be sought after, and currency prices are expected to rise.
Interest rate hikes/balance sheet reduction: market liquidity may be withdrawn, funding costs may rise, and investors’ risk appetite may decrease, which may put pressure on the prices of risky assets and the cryptocurrency market may adjust or fall.
Influencing market sentiment
The Fed's policy changes often affect the sentiment of the global capital market. As a high-volatility risk asset, the performance of the cryptocurrency market will also be affected by macro policy expectations and capital flows. When policy expectations are unclear, the market tends to fall into risk aversion and currency price fluctuations intensify; conversely, loose policies may bring about a bull market.
4. Related websites
Official and authoritative data platform
Federal Reserve official website: releases federal funds rate, FOMC meeting minutes and balance sheet data (www.federalreserve.gov).
FRED: Provided by the Federal Reserve Bank of St. Louis, it updates various economic data in real time (fred.stlouisfed.org).
Financial news and data platform
Bloomberg, Reuters: Provides the latest Federal Reserve policies, Treasury yields and macroeconomic data.
TradingView: You can view technical charts and pay attention to data indicators such as government bonds and the US dollar index.
Cryptocurrency-only platform
CoinDesk, Cointelegraph: reporting and interpreting the impact of macroeconomics on the cryptocurrency world.
CryptoQuant, Glassnode: Provide on-chain data and capital flow analysis to help investors understand market sentiment and risks.
The impact of the Fed's policy on the cryptocurrency market is not linear and needs to be judged comprehensively based on multiple factors such as liquidity changes, market sentiment, and the macroeconomic environment. The current slowdown in balance sheet reduction and the expectation of potential interest rate cuts may provide short-term support for the crypto market, but we need to be wary of the risks brought about by policy shifts, a stronger dollar, and cross-market fluctuations. Investors should remain flexible and closely follow the Fed's policy path and economic data trends.
US CPI, PCE
1. Definition and difference
The CPI (Consumer Price Index) measures the price changes of household spending on consumer goods and services, including food, housing, transportation, medical care, etc. It is one of the main indicators of inflation and is used to reflect the rise and fall of the overall price level. It is a key indicator to measure the price changes of a basket of consumer goods and services, reflecting the level of inflation. In addition to the overall CPI, the "core CPI" is usually paid attention to, which excludes items with large price fluctuations such as food and energy, in order to more accurately reflect the basic inflation trend.
PCE, or the Personal Consumption Expenditures Price Index, is an indicator that measures changes in the prices of goods and services that consumers actually spend on.
US CPI release: Once a month, the US Bureau of Labor Statistics (BLS) usually releases it in the second or third week; 8:30 am New York time.
US PCE release: Once a month, the US Bureau of Economic Analysis (BEA) usually releases it in the middle of each month at 8:30 am New York time.
The main difference between the two is the calculation method and coverage. The CPI calculation method is based on a fixed consumption basket with fixed weights, and does not reflect changes in consumers' actual expenditures in a timely manner. The coverage mainly reflects the prices paid directly by urban consumers, including food, housing, transportation, etc., with the focus on measuring changes in the cost of living.
The PCE calculation method uses a chain-weighted method, which can dynamically adjust weights to reflect consumer purchasing behavior and substitution effects. The coverage includes not only the prices paid directly by consumers, but also the part paid by third parties (such as the part of medical services paid by insurance), so it covers a wider range and reflects more comprehensive changes in consumer expenditure.
2. How will it affect the cryptocurrency circle?
CPI and PCE data mainly affect the rise and fall of the cryptocurrency market by influencing the Federal Reserve's monetary policy. The Federal Reserve generally sets an inflation target (usually close to 2%). CPI data above the target may prompt the Federal Reserve to raise interest rates, shrink its balance sheet, and thus tighten monetary policy; conversely, data below the target may maintain looseness or even cut interest rates. However, because PCE can reflect actual changes in consumer prices more dynamically and comprehensively, the Federal Reserve usually uses it as the main indicator for measuring inflation, and uses it as the basis for formulating monetary policy (such as raising or lowering interest rates).
When PCE data rises, it usually indicates an overall increase in consumer prices, which may prompt the Federal Reserve to adopt a tightening policy (raising interest rates/shrinking the balance sheet), thereby increasing the cost of market funds and exerting certain pressure on high-risk assets including Bitcoin. If the PCE data is lower than expected, it indicates that inflationary pressure is small, and the Federal Reserve may maintain an accommodative policy, which will help increase market liquidity and benefit the cryptocurrency market.
High CPI data (high inflation) usually indicates a tightening monetary policy, leading the Federal Reserve to raise interest rates and shrink its balance sheet. This will increase borrowing costs and recover market liquidity, thereby putting pressure on risky assets including Bitcoin and increasing the risk of a fall; low CPI data (low inflation) may prompt the Federal Reserve to maintain an accommodative policy, and sufficient market liquidity will help to push up the prices of risky assets.
In addition, CPI data will affect global economic expectations and investor sentiment. Under the expectation of high inflation and tightening policies, funds tend to flow to safe-haven assets (such as the US dollar, bonds, and gold). Some investors may also regard Bitcoin as a tool to hedge against inflation, but the overall risk appetite will decline; in an easing policy environment, the market is more interested in high-risk assets, and Bitcoin may benefit from the rise.
3. Related websites
U.S. Bureau of Labor Statistics (BLS): https://www.bls.gov
PCE official data: https://www.bea.gov
Bloomberg, Reuters: provide real-time economic data and interpretation.
Trading Economics, Investing.com: Displays historical and real-time CPI data charts.
CoinDesk, Cointelegraph: Interpreting the impact of macroeconomic data on the cryptocurrency world.
US non-farm data
1. Definition:
The U.S. Non-Farm Payrolls (NFP) is the U.S. non-agricultural employment index. It is a key economic indicator released by the U.S. Bureau of Labor Statistics (BLS). It counts the number of new jobs created in a month in all industries except agriculture, private households and government departments.
It reflects the development of the US manufacturing and service industries, and is an important indicator of whether the US economy is running well. It is directly related to the monetary policy of the Federal Reserve, and the monetary policy decision directly affects the trend of the US dollar, which is equally important for digital assets. Therefore, every day when the non-agricultural index is released, it will cause a major earthquake in the global financial market, and the market will fluctuate greatly. That night is also called "Non-agricultural Night".
Nonfarm payrolls data is typically released on the first Friday of each month at 8:30 a.m. EST.
2. How will it affect the cryptocurrency market?
Generally speaking, non-farm data is the first important economic data released each month. It reflects the development of the US manufacturing and service industries. It is an important indicator of whether the US economy is performing well. It is directly related to the Federal Reserve’s monetary policy, and thus affects the rise and fall of the cryptocurrency market.
According to past data, if non-farm employment remains above 100,000, the unemployment rate will not rise; if it is above 150,000, the unemployment rate will continue to decline; and if it is above 200,000, the labor market will be considered very strong.
Strong non-farm data: shows an active job market, which may indicate an overheated economy, prompting the Federal Reserve to adopt a tighter monetary policy (such as raising interest rates or shrinking its balance sheet). This will lead to higher funding costs and reduced market liquidity, thus putting pressure on Bitcoin and other cryptocurrencies.
Weak non-farm data: may trigger market concerns about economic weakness, prompting the Federal Reserve to adopt loose policies (such as interest rate cuts or balance sheet expansion), increase liquidity and reduce borrowing costs, which will indirectly benefit the cryptocurrency market.
3. Related websites
U.S. Bureau of Labor Statistics (BLS): https://www.bls.gov
Bloomberg, Reuters: provide real-time data and detailed interpretation.
Trading Economics, Investing.com: Displays charts of historical and real-time employment data.
CoinDesk, Cointelegraph: Focus on the impact and interpretation of macroeconomic data on the cryptocurrency market.
As an important indicator of the US labor market, non-farm payrolls data is released on the first Friday of each month. Its fluctuations not only directly affect the Federal Reserve's monetary policy decisions, but also indirectly affect the prices of Bitcoin and other crypto assets through market sentiment and global capital flows. Cryptocurrency investors should pay close attention to non-farm payrolls data and related economic indicators to better understand the potential impact of changes in the macroeconomic environment on the crypto market.
