US Q2 GDP surged 3.8%, inflation remains high! Bitcoin big dump fell below 110,000 USD

U.S. economic data once again exceeded market expectations, with the annualized GDP growth rate for the second quarter reaching 3.8%, a near two-year high, while the core PCE price index was above expectations, indicating that inflationary pressures have not yet fully eased. This combination of "strong economy but difficult to reduce inflation" immediately triggered market fluctuations, with Bitcoin falling to $109,568 in the short-term on September 26, and expectations for an interest rate cut in October being shaken. What does this economic data mean for the crypto market? How should investors respond to this complex situation?

US economic data exceeds expectations: strong growth amidst stubborn inflation

The U.S. Bureau of Economic Analysis released the second quarter economic data on the evening of September 25, with several key indicators exceeding market expectations:

GDP Annualized Quarterly Growth Final Value: 3.8%, significantly higher than the expected 3.3% and the previous value of 3.3%.

Core PCE Price Index Annualized Quarter-on-Quarter Final Value: 2.6%, higher than the expected 2.5% and the previous value of 2.5%

Initial claims for unemployment benefits: 218,000 people, lower than the expected 235,000 people.

This set of data outlines a complex picture of the U.S. economy: On one hand, a 3.8% GDP growth rate marks the fastest record in nearly two years, indicating strong economic growth momentum; on the other hand, the core PCE price index is higher than expected, showing that inflationary pressures have not yet fully eased, which could impact the Federal Reserve's future monetary policy decisions.

It is worth noting that there have been some subtle changes in the labor market. Although the number of initial unemployment claims was lower than expected, the average duration of unemployment in August rose from 24.1 weeks to 24.5 weeks, the longest since April 2022, and the unemployment rate also climbed to a nearly four-year high of 4.3%. These signs suggest that the labor market may be gradually cooling, but at a slow pace.

Crypto market experiences severe fluctuation: Bitcoin and Ethereum both fall

After the release of economic data, the crypto market immediately experienced significant fluctuations:

Bitcoin: short-term fall to 110,850 USD, followed by a slight rebound to 111,636 USD

Ethereum: Lowest spike at $3,924, falling below the psychological barrier of $4,000, with a 24-hour decline of 4%.

This kind of fluctuation reflects the market's high sensitivity to U.S. economic data. Strong economic data combined with inflation data exceeding expectations has raised concerns among investors about the Federal Reserve potentially slowing down its interest rate cuts, leading to a fall in the prices of risk assets.

Technical analysis shows that Bitcoin is currently testing a key support level. If the support level at $110,000 cannot hold, it may trigger further declines, with the next important support level around $105,000. Ethereum's performance is even more fragile, having broken through several technical support levels, and the gain or loss at the $4,000 mark will determine the short-term trend.

October interest rate cut expectations impacted: market betting probability declines

(Source: CME Fed Watch)

After the release of economic data, market expectations for a rate cut by the Federal Reserve in October have changed significantly. According to the CME Fed Watch Tool:

· The market is still betting that the Federal Reserve will continue to cut interest rates by 1 basis point (25 basis points) in October.

· However, the probability of interest rate cuts has decreased from 91.9% the previous day to 83.4%.

· The probability of maintaining the interest rate unchanged has correspondingly increased.

This change indicates that strong economic data is shaking the market's confidence in the Federal Reserve's continued interest rate cuts. If future data continues to show a strong economy and stubborn inflation, the Federal Reserve may reassess its rate-cutting path, which would put pressure on risk assets.

The Impact Mechanism of Economic Data on the Crypto Market

Why do economic data have such a significant impact on Bitcoin and other cryptocurrencies? This mainly involves the following mechanisms:

1. Interest Rate Expectations and Capital Costs

· Strong economic data may lead the Federal Reserve to maintain higher interest rates or slow down the pace of rate cuts.

· The high interest rate environment increases the opportunity cost of holding non-yielding assets (such as Bitcoin).

· The increase in capital costs has reduced the amount of funds flowing into risk assets.

2. The Inverse Relationship Between the Dollar Trend and Cryptocurrency

· Strong economic data usually supports the strengthening of the dollar.

· Bitcoin has historically shown a negative correlation with the US dollar index.

· A stronger dollar often leads to a fall in the prices of crypto assets priced in dollars.

3. Risk Appetite and Market Sentiment

· Economic data exceeded expectations, but inflation remains high, increasing policy uncertainty.

· The rise in uncertainty has led to a decrease in investors' risk appetite.

· Risk assets (including encryption currencies) often come under pressure when risk appetite declines.

4. Institutional Investor Behavior

Institutional investors are highly sensitive to macroeconomic data.

· Changes in economic data may lead institutional investors to adjust their asset allocation.

The changes in institutional capital flow have a significant impact on the crypto market.

Short-term Market Outlook: Multiple Factors Intertwined

Looking ahead to the coming weeks, the crypto market will be influenced by multiple factors:

1. Key Economic Data

September 27: US August Personal Income and Spending Report (including PCE inflation data)

October 4: US September Non-Farm Employment Report

October 10: US September Consumer Price Index (CPI)

This data will provide important reference for the Federal Reserve's policy meeting on October 29-30 and will directly affect the market's expectations for the interest rate cut path.

2. Technical Factors

· Bitcoin is currently near a key technical support level.

· $110,000 is an important psychological barrier for the short-term.

· Trading volume and open interest data indicate cautious market sentiment.

3. Institutional Fund Flow

The inflow of ETF funds will be an important indicator of the short-term market direction.

Institutional investors' reactions to economic data may amplify market fluctuations.

Investor Response Strategy

In the face of the current complex market environment, investors may consider the following strategies:

1. Diversified Portfolio

· Avoid concentrating funds excessively in a single encryption asset

· Consider allocating part of the funds to traditional safe-haven assets, such as gold.

2. Set Stop Loss Position

· Set stop-loss below key support levels to control downside risk.

· Bitcoin can consider setting a stop loss in the range of 108,000-109,000 USD.

3. Pay attention to economic data releases

· Closely monitor the upcoming key economic data

· Understand the potential impact of data on Federal Reserve policies

4. Adopt a staggered position building strategy

· Avoid large one-time entry

· Buy in batches during market corrections to lower the average cost.

5. Maintain sufficient liquidity

· Maintain some liquidity of funds in a market environment with higher uncertainty.

· Prepare for potentially better entry opportunities

Conclusion: The Dual Challenge of Strong Economy and Stubborn Inflation

The economic data from the United States for the second quarter shows a complex situation of "strong growth but stubborn inflation," posing a dual challenge for the crypto market. On one hand, a strong economy indicates lower systemic risk, benefiting risk assets; on the other hand, persistent inflationary pressure may lead the Federal Reserve to slow down its interest rate cuts, which puts pressure on crypto assets.

In the short term, market fluctuations may intensify, and investors should remain cautious, closely monitoring the upcoming economic data and speeches from Federal Reserve officials. In the long term, solid economic fundamentals are favorable for the development of crypto assets, but inflation trends and monetary policy paths will be key factors in determining market direction.