Weekly Financial Market Analysis: 22/04/2024 (U.S. GDP Growth and Bitcoin reward Halving)
Weekly Financial Market Analysis: 22/04/2024 (U.S. GDP Growth and Bitcoin Reward Halving)
Writer: Klinsmann Lee
U.S. Q1 GDP Growth at 1.6%, below expectations. [1]
Background:
U.S. Q1 Gross Domestic Product (GDP) growth increased by 1.6% year on year, this is below market expectation of 2.6%.
Consumer spending increased by 2.5% year on year, this is below the market expectation of 3%.
According to Jeffrey Roach, Chief Economist at LPL Financial, the economy will likely decelerate further in the following quarters as consumers near the end of their spending splurge.
Labour market continues to be resilient – Initial jobless claims totalled 207,000 for the week of April 20, down 5,000 and below the 215,000 estimates.
Klinsmann’s Analysis:
The combination of high inflation data (see last week’s article) and slowing economic growth is a bad sign for the U.S. economy. This suggests early signs of stagnation in the U.S. economy.
Stagnation is “economic cycle characterized by slow growth and a high unemployment rate accompanied by inflation” [2]
Q1 economic growth data is surprising for me. It suggests weaknesses in the U.S. economy.
Given the economic situation in the U.S., I am wondering whether the Federal Reserve will adjust the number of interest rate cuts to support economic growth or control the inflation rate.
Bitcoin price jumps after Bitcoin's fourth block reward halving. [3]
Background:
The price of Bitcoin rose 2.86% at $67k following its completion of the fourth halving, which reduces the incentives paid to Bitcoin miners.
Bitcoin halving every four years is mandated in the Bitcoin code.
The purpose of Bitcoin halving every four years is to:
Slow the issuance of bitcoins
Create a scarcity effect that allows Bitcoin to have a digital “gold-like” quality.
Historically, it takes several months to see the impact of Bitcoin halving to be reflected in the price of Bitcoin.
Klinsmann’s Analysis:
The impact of Bitcoin reward halving negatively impacts Bitcoin miners as less efficient miners will be forced to exit the industry given that there is less reward (less revenue) from successfully solving each block in the blockchain.
The value of Bitcoin is driven by the scarcity of Bitcoin, the demand for Bitcoin by the investment community and the common usage of Bitcoin as a currency.
As long as the supply of Bitcoin is limited, this acts as one of the drivers of the value of Bitcoin.
I do not own Bitcoin or any cryptocurrency.
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