Yesterday’s dot plots shocked the Bitcoin and crypto markets. But how do they work? And why are they so important?
After breaking through $69,000 thanks to positive inflation data, Bitcoin returned to the price levels at which it was trading yesterday morning. Nothing in fact, therefore, a sort of draw that only helped those who were able to trade during a phase of high volatility.
What compressed the price and the ambitions of returning above $70,000 for Bitcoin (and more generally the rebound of the crypto world) were not the decisions on rates, it was not Jerome Powell’s press conference, but the update of a graphicthat of dot plotwhich perhaps few people understand but which is crucial in this market phase.
For this reason we will analyze it together here – in its changes – as well as analyze its meaning and what it means for the future of the economy. And you can also come and discuss it on the our Telegram Channel – together with our editorial staff and our readers.
The dot plot changes, do the fundamentals for the crypto and Bitcoin market also change?
Depends. But let’s go in order. Yesterday was a historic day, because within a few hours we had data on US inflation (positive for the markets), decisions on interest rates (discounted) and also the update of the dot plota graph that will be useful to start understanding if you want to invest in the medium term and the long term Bitcoin and crypto.
- What is dot plot?
It is a graph where each of the members voting for rate decisions places a dot, a dot precisely. But what does the dot symbolize? It symbolizes the level of interest rates that are expected for different time periods.
In the specific case of the circled dot, for 2024 rates are expected to be 5.25%-5.50%, i.e. the current rates. Then there are those who “voted”, or rather predicted, lower rates. In any case, each dot represents a prediction, by the same people who then decide on the rates.
Let us therefore imagine it to be a prediction by the most influential members of the board that decides on US rates.
Because interest rate decisions have a huge impact on markets. Risk assets, such as stocks and crypto, tend to perform better at a time of lower rates. And if expectations about cuts are reduced, enthusiasm for this category of investments is also reduced.
- What happened with the June 12 dot plots?
Dot plots are released every 3 months. And compared to the data of 3 months ago, those in June are much higher on average. What does it mean? It means that we have gone from an average forecast for 2/3 cuts during 2024, to 1/2 cuts. Put simply: FOMC participants see one less cut compared to March than they had expected in March. And this is why the markets have yesterday correctthat is, they lost ground, when this graph was released.
At that time? And all lost?
No. As Jerome Powell pointed out, in reality these are forecasts that are formulated on current data. And just as those of March were overturned, so those of June could be overturned.
However, markets also react in the short and very short term. And here is the reason for yesterday’s correction. THE dot plot next ones will arrive in September, when we might be finally close to the rate cuts that are of great interest to market operators.
