Cryptocurrency markets experienced heightened volatility last week as concerns over potential U.S. stagflation intensified, with Ethereum recovering from significant exchange-traded fund outflows to surge 25.01% while investors focus on Tuesday's consumer price index release that could determine Federal Reserve interest rate policy.
What to Know:
- Ethereum jumped 25.01% for the week despite BlackRock withdrawing $375 million from its spot ETF, while Bitcoin gained only 5.44%
- Fed Vice Chair Michelle Bowman's weekend comments advocating for three rate cuts pushed Ethereum temporarily above $4,300
- Tuesday's July CPI data release will likely determine whether the Fed proceeds with anticipated September interest rate cuts
Stagflation Fears Drive Market Sensitivity
The cryptocurrency market's turbulence began Tuesday with the ISM Services PMI release, which signaled a slowdown in the U.S. services sector. The index revealed that prices in the services sector have risen while employment declined since April, when President Trump's "tariff war" commenced.
This combination of rising prices and declining employment represents stagflation, one of the most challenging economic crises for central banks because it prevents them from either lowering or raising interest rates effectively. Market participants increasingly worry that the Trump administration's tariff policies are pushing the United States toward stagflation.
Simultaneously, market expectations for three interest rate cuts this year dropped to two. Risk assets sensitive to market liquidity, including cryptocurrencies, fluctuated in alignment with the constantly changing interest rate outlook throughout the week.
The week concluded with news that Stephen Miran, chair of the White House Council of Economic Advisers, was appointed to fill the vacant Fed Governor position previously held by Adriana Kugler. Miran ranks among President Trump's closest economic advisors. Markets interpreted this appointment as evidence that Trump strongly advocates for lower interest rates, leading U.S. stock markets to close with expectations of three rate cuts this year.
Ethereum's Recovery Despite ETF Outflows
Fed Vice Chair Michelle Bowman's unexpected weekend remarks fueled Ethereum's surprising rally. Speaking to the Kansas Bankers Association, Bowman stated bluntly that "three rate cuts are necessary." She emphasized that recent employment data demonstrate the need for proactive measures to prevent further weakening of economic activity and employment conditions.
Ethereum's price temporarily exceeded $4,300 following her comments.
BlackRock made an unexpected move that injected uncertainty into markets. The major player in the U.S. spot exchange-traded fund industry withdrew significant funds from both its Bitcoin spot ETF (IBIT) and Ethereum spot ETF (ETHA) on Monday.
IBIT experienced a net outflow of $292.21 million that day, marking the largest single-day outflow since May 30. Market analysts began speculating that Bitcoin prices could drop back to the $111,000 level.
The Ethereum spot ETF, ETHA, saw a net outflow of $375 million, representing a 3% decrease in BlackRock's Ethereum holdings in a single day. The massive outflow from BlackRock's ETF ended the 21-day consecutive net inflow record for Ethereum spot ETFs.
The net outflow of ETF funds ceased after two days. Among the major cryptocurrencies, Ethereum demonstrated faster recovery. Strategic ETH purchases by U.S.-listed companies catalyzed Ethereum's price recovery.
Bitmain updated its record as the world's largest Ethereum-holding listed company, holding over 830,000 ETH. Tom Lee, a renowned Wall Street investment strategist, emphasized that buying Ethereum will represent the most important trade he makes in the next decade. Geoff Kendrick, head of digital asset research at Standard Chartered Bank, explained that stocks of companies buying Ethereum could prove more attractive than Ethereum spot ETFs.
President Trump signed executive orders last week to prevent debanking for lawful crypto businesses and open the retirement fund market. Ethereum gained 25.01% for the week while Bitcoin rose only 5.44%, despite Bitcoin regaining $119,000 over the weekend. Solana gained 15.04% for the week.
Critical Economic Data Ahead
Market attention focuses on whether the Fed will implement three interest rate cuts this year and announce a definite rate cut at September's Federal Open Market Committee meeting.
The July U.S. Consumer Price Index data release Tuesday will prove crucial. If the actual CPI figure significantly exceeds market expectations, the outlook for second-half interest rate cuts will likely become uncertain again, potentially forcing cryptocurrency prices to face adjustment.
Thursday's Producer Price Index and Friday's July industrial production and retail sales figures merit attention as they will provide evidence of potential U.S. economic contraction.
Comments from Fed officials who significantly influence September's FOMC interest rate decision remain important. Wednesday, Chicago Federal Reserve Bank President Austan Goolsbee will attend a monetary policy luncheon hosted by the Springfield Chamber of Commerce.
According to FedWatch data, the probability of a 0.25% interest rate cut at September's FOMC meeting stands at 88.4% as of Monday morning. This probability might rise slightly once benchmark interest rate futures markets reopen following Vice Chair Bowman's weekend remarks.
Closing Thoughts
Cryptocurrency markets face a pivotal week as Tuesday's CPI data could determine Federal Reserve policy direction, with Ethereum's strong performance despite ETF outflows signaling underlying institutional interest. The interplay between stagflation concerns and rate cut expectations will likely continue driving market volatility.