The Current State
This week signals the start of an intense period of volatility in the crypto markets, and not without good reason. There are several macro events expected that will likely have a significant spillover effect on Bitcoin and many other risk assets.
These events include: the upcoming U.S. Federal Reserve policy announcement, upcoming U.S. labor market statistics, interest rate decisions by the Bank of Japan, and various geopolitical developments concerning a possible U.S.-Iran deal. These events will impact liquidity and the overall risk appetite and sentiment in the digital asset space.
U.S.-Iran Peace Deal and its Geopolitical Implications
Of all the macro events we detail, the upcoming U.S.-Iran peace deal, expected to be signed on June 19 in Switzerland, is the one most likely to impact markets the most. After Pakistani Prime Minister Shehbaz Sharif announced the event, it became likely that the Strait of Hormuz, an economically vital waterway, would be opened after being closed for periods of time.
Eased tensions and a U.S.-Iran peace deal may result in a more favorable risk appetite in the global markets. This positive effect on traditional markets usually results in positive effects for Bitcoin and cryptocurrencies.
Federal Reserve Meeting and Decoding Inflation
Another key macro event is the June 16-17 U.S. Federal Open Market Committee (FOMC) meeting. Markets expect that for the first time in some FOMC meetings, Federal Reserve Chair Kevin Warsh will not raise the policy rate.
However, the markets will not treat the FOMC meeting as a policy rate “pause” announcement. The markets have largely centered their focus on Warsh’s comments on the path of inflation and the likely future direction of monetary policy.
Tone-sensitive liquidity makes minor changes in tone translate to major fluctuations in the liquidity expected in crypto markets.
Economic indicators leading to the decision comprise of housing starts, building permits, retail sales, and business inventory data.
U.S. Jobs Data and Market Sensitivity
Labor data, especially initial jobless claims coming out Thursday, are important to the market. Claims are expected to be around 226,000, slightly less than last week.
Stronger job data will create stronger expectations for a tighter monetary policy, negatively affecting risk assets, especially Bitcoin. Weaker job data will create the opposite expectation and stronger financial conditions will strengthen the crypto market.
Bank of Japan Rate Decision and Global Liquidity
It is expected that the Bank of Japan (BoJ) will also decide to raise their short term interest rate to 1.0% for the first time since 1995. It would also create tighter global liquidity.
A stronger yen will cause the yen-funded carry trade to unwind. This will create liquidity shocks and added pressure on Bitcoin. There is a pattern of carry trade unraveling due to a strengthened currency, causing stress on the crypto markets, especially the 2024 BoJ tightening.
Conclusion
The coming week will be crucial for the crypto market as multiple central banks listen to signals from the labor market while geopolitical issues are also active.
Although some might see the US-Iran deal relaxation of tensions as a reason to be optimistic in the short-term, an increase in market volatility is expected as the Fed and BoJ tighten financial conditions and US job data remains strong. Heightened macroeconomic pressures will be reflected in abrupt changes in the price of Bitcoin and other crypto assets.
