Welcome to the Asia-Pacific Morning Brief. This brief is an essential summary of overnight cryptocurrency developments that shape regional markets and global sentiment. The Monday edition provides a summary of the past week and predictions for the upcoming week, written by Paul Kim. Prepare your green tea and stay tuned to this space.
Bitcoin fell below $117,000 after reaching an all-time high of over $124,000, as high inflation data reduced expectations of Federal Reserve rate cuts. The market anticipates only two rate cuts this year.
Decreased Expectations of Fed Rate Cuts
The cryptocurrency market experienced significant volatility last week due to a series of unstable macroeconomic indicators, which weakened expectations of an aggressive Federal Reserve rate cut. After reaching an all-time high of over $124,000, Bitcoin's price dropped below $117,000.
This sentiment decline is a result of consecutively released inflation reports that were higher than expected, raising questions about the continued possibility of monetary easing by the U.S. central bank.
The most important economic report last week was the July Consumer Price Index (CPI) released on Tuesday. The market initially reacted positively because the headline CPI was lower than Wall Street's expectations. However, a closer look revealed a less favorable situation.
Tariff Costs Reflected in Consumer Prices
The details of the CPI report showed notable acceleration in both the core CPI (excluding food and energy) and the "supercore" CPI, which measures service inflation excluding housing. Particularly, the sharp rise in the supercore CPI since April indicates rapidly accelerating service sector inflation.
An even greater shock came with the July Producer Price Index (PPI) released on Thursday, which measures wholesale-level inflation. The PPI surged by 0.9% monthly, showing a record-breaking increase, the first in three years. This contrasts with relatively stable producer prices in May and June, even as the U.S. "trade war" intensified.
Trade experts interpret this surge as a delayed response to U.S. tariff policies. Companies initially seemed to absorb costs by stockpiling inventory, but July data suggests they can no longer bear the financial burden. This indicates that companies are now passing on tariff-related cost increases to the next production stage, with price increases in the service sector being particularly prominent in the PPI.
Perhaps the most warning indicator was the July U.S. Import Price Index. According to traditional economic theory, tariffs typically increase import prices. The Trump administration cited minimal effects in May and June to claim that trade policy avoided inflation.
However, the sharp rise in import prices in July suggests a crucial turning point, meaning import and export companies that have been absorbing tariff costs are now passing them on to consumers.
The Federal Reserve has expressed significant concerns about the inflationary potential of tariffs in its two recent Federal Open Market Committee (FOMC) meetings. If import prices continue to rise in August due to trade policies, additional rate cuts may become increasingly difficult to justify.
Rate Cut Expectations Reduced from Three to Two
The changing macroeconomic environment directly impacts Bitcoin's price and market performance.
This correlation was fully revealed on Thursday. Bitcoin's price exceeded $124,000 after Treasury Secretary Scott Bessent mentioned the possibility of a 50bp rate cut in a September media interview. The PPI report immediately erased the market's previous gains. Bessent retracted his statement and recommended a more conservative 25bp rate cut.
Market expectations were subsequently readjusted. As of Friday, according to the CME FedWatch tool, investors now anticipate only two rate cuts for the remainder of the year. Fund flow data also shows this crucial shift in investor sentiment.
On Friday, there was a surge in Bitcoin deposits on Binance exchange at the time of the Import Price Index release. A surge in Bitcoin deposits is typically considered a movement of funds for selling. After recording net inflows for a week, Bitcoin and Ethereum spot ETFs experienced net outflows.
Altcoins were no exception. Last week, Ethereum, the world's second-largest cryptocurrency, set a new all-time high on Monday. However, it did not exceed its dollar-based all-time high of $4,860 during the week. As of Monday 00:00 UTC, Ethereum was trading at around $4,460.
Jackson Hole in Focus... Powell's Next 'Hint'
The seemingly certain three Federal Reserve rate cuts this year have now entered the realm of uncertainty.
The deterioration of July U.S. employment data provided strong grounds for easing, but the reemergence of inflation made the Fed hesitant. The decision now rests on Federal Reserve Chair Jerome Powell's shoulders.
The financial world will look for clues at the Fed's annual Jackson Hole Economic Symposium, to be held from August 21 to 23. This prestigious event, hosted by the Kansas City Federal Reserve Bank, brings together central bankers from around the world.
Fed Chair Powell will deliver a speech on U.S. monetary policy at 02:00 am UTC on Friday. He mentioned changes in the Federal Reserve's monetary policy at the Jackson Hole conference. As a well-known example, he previously implied a 50 basis point reduction in his Jackson Hole speech last September.
This week, two prominent 'doves' are also scheduled to speak: Vice Chair Michelle Bowman (Wednesday) and Board Member Christopher Waller (Thursday). Both have supported preemptive rate cuts due to concerns about economic slowdown and labor market weakness. Investors will pay attention to whether recent inflation data has softened their dovish stance.
Several high-impact macroeconomic indicators are set to be released this week. However, the July FOMC meeting minutes to be released on Wednesday could significantly impact the market depending on their content.
If other FOMC members also supported rate cuts alongside Bowman and Waller, the market could revive rate cut expectations. This scenario could bring additional volatility to the Bitcoin market. We wish all readers a successful investment week.
