In May, the effects of tightening liquidity on global financial markets are expected to become more pronounced, which is why we may also see effects on their prices in crypto markets, particularly Bitcoin and Ethereum.
April saw an unexpected upward movement in the US Consumer Price Index (CPI), while Q1 GDP data was significantly lower than expected.
Looking at the data relating to the subheadings of GDP, imports are the main drag, due to strong US demand.
However, weak exports point to subdued global demand. Furthermore, consumer spending is also weak and government spending is declining.
Interest rates in the States affect Bitcoin and Ethereum
The US dollar index remains strong, floating around 106. US interest rates are rising and the suppression of US housing demand is starting to be felt.
With recent increases in U.S. 30-year mortgage rates, existing home sales, a major underpinning of recent strong U.S. demand and high inflation, have begun to decline. While current financial conditions are not tight enough, there is still room for a widening of US stocks, commodities and credit spreads.
Global assets are similarly affected and the cryptocurrency market may experience downward pressure due to tightening macro financial conditions.
From the FED Net Liquidity perspective, market liquidity is significantly tightening, which could lead to average performance for BTC and ETH in May. Looking at the options market, at-the-money implied volatility for BTC and ETH has fallen from highs of around 78 in April to around 58, with a more significant decline in implied volatility for options expiring in late May, indicating that Options market traders believe there is a relatively low probability of a market turnaround in the next month.
For these reasons, “BTC and ETH could see a decline in May, with a volatile rebound. BTC is expected to range between $56,000 and $68,000 in May, while due to events like the ETH ETF, ETH’s volatility range is wider, with ETH potentially ranging between $2,600 and $3,600.”explains Ryan Lee, analyst at the crypto exchange Bitget, who provided us with his monthly analysis regarding the prices of Bitcoin and Ethereum.
