The conclusion of the recent study by ARK Invest shows that stronger bearish headwinds anticipated in the last quarter of 2023 are adversely affecting the crypto market. Cathie Wood’s ARK Invest report cites macroeconomic indicators suggesting the remaining months pose economic challenges to investors.
The ARK Invest report laments that 2023 has been a whipsaw for investors with the exemption of equities markets. Nonetheless, the report indicates that the period running towards December 2023 could pose several economic challenges.
ARK, under the stewardship of Cathie Wood as its chief executive, is managing assets estimated at $13.9 billion. The criticism profiled by the ARK Investment report echoes the pronouncements issued by Wood, identified as a strong crypto advocate.
ARK Invest has, in recent years, pursued investment in the digital assets landscape. It partnered with 21Shares in its June 2021 bid for the Bitcoin exchange-traded fund (ETF). Besides the applications submitted in partnership with the European asset manager, it would replicate BlackRock’s pursuit to spot Bitcoin ETF in the US. Nonetheless, ARK Invest’s application has been pending review by the Gary Gensler-chaired Securities and Exchange Commission (SEC) since its submission in May 2023.
ARK Invest Warns of Bumpy Bitcoin Bull Run
ARK’s bullish projection on Bitcoin is pegged on the immense potential, particularly by integrating artificial intelligence (AI). The investment management firm considers AI as harboring transformative input toward corporate operations, productivity, and costs.
ARK Invest rules out the Bitcoin bull, realizing a straightforward projectory, citing the prevailing macroeconomic conditions. The firm’s newsletter outlines several reasons for advancing its less-than-optimistic projection for digital assets.
ARK regrets that cryptocurrencies are threatened by unemployment and rising inflation rates. Also, the newsletter cites rising interest rates and declining gross domestic product (GDP) estimates. ARK highlights that the restrictive monetary policy the Federal Reserve (Fed) implemented would further the bumpy bull run.
Weakening Labor Market Affirms Bearish Macroeconomic View
ARK considers that the natural interest rate suggests that the subsequent months would strain the economy, thus forcing periodic strains in the bull course. ARK considers the natural interest rate the theoretical metric when the economy cannot contract or expand. It adds that borrowing and lending rates bear increased pressure whenever the natural interest rate surpasses the actual federal funds’ policy rate.
ARK projects that inflation would slow down, fueling the actual federal funds policy rate rise. Such an outcome would widen the natural rate of interest gap, thus the basis for a bearish macroeconomic view.
ARK Invest analysts assessed the divergence evident in real production and income. The report illustrates that GDP and GDI are divergent, contrary to expectations where income earned should match the services and goods produced. A review of the recent data by ARK shows that real GDP triumphs over real GDI by 3%. The metric indicates the potential to initiate downward revisions in production.
ARK Invest illustrated that the US employment data illustrated a potential bearish quarter in the coming quarter. In a recent announcement, the analysts observed that the US government revised the figures downward in the first half of 2023.
The labor market has portrayed a weakening profile in the past months. The decline matches the 2007 experience during the financial crisis. The downward revisions witnessed for six consecutive months indicated a potential return to the 2007 financial crisis.
Stagflation Threatens to Delay Crypto Bull Market
The ARK Invest analysts consider that the bitcoin bull market faces inevitable delays fuelled by stagflation. They admit that the stagflation period triggers a bearish trend for risky assets. As such, they cite the reversal witnessed on the yearlong discounted pricing fueled by rising consumer spending.
The writers cited the Johnson Redbook Index, which tracks 80% of the retail sales compiled by the Department of Commerce. It shows the initial rebound in the past 12 months occurred in August’s same-store sales. It suggests that inflation is exerting upward pressure.
The metric indicates the possibility of the prevailing macroeconomic uncertainty extending for several months. Nonetheless, the Johnson Redbook Index was inconclusive of the exact reaction by the crypto investors. The trend illustrates that declined economic growth and accelerated inflation portray unfavorable risk-on assets.
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