U.S. Economy Shows Fragile Growth as Crypto Reaction is Imminent

Today’s Gross Domestic Product report has shown a growth of 2.9% in the fourth quarter, albeit, at a much slower pace than the 3.2% of quarter three. Accompanied by a decrease in weekly jobless claims, the U.S. economy has shown slowed growth and remaining optimism.

Yet, with the positive outlook threatened by the potential of a looming recession, the crypto sector’s response becomes an interesting narrative. The hope could spur a rally in the coming days, but caution is the ideal state when considering how quickly the narrative can change.

Source: Gallup News

The U.S. Economy’s Fragile Victory

There is no understating that today’s GDP report is good news for hte current economic state. Conversely, there is no understating it comes with a few notable caveats and contextualizing to understand its fragility.

The U.S. GDP report noted a 2.9% increase in the fourth quarter, which did ultimately exceed what many had expected. This number noted that consumers had maintained a fairly strong rate of spending, which is also good news. Reuters has noted the report signals a rise in inventory accumulation and business spending on equipment.

Yet, the momentum of the year had undoubtedly seen a slow in pace, likely noted by the Federal Reserve’s constant interest rate hikes hindering demand. The third quarter of the year saw a GDP rise of 3.2%, which signaled a decrease from the two-time frames.

Subsequently, there is the fear of a lagged effect of the Fed’s actions throughout the year.

Federal Reserve
Source: Pixabay

Most economists are predicting a recessionary state for the latter half of the year. The question is, just how dire that recessionary state could be for the U.S. economy. Predicting that is immensely difficult considering the alternative realities of economic activity in the last quarter. Retail sales have fallen in 2022’s final months, but the labor market remains strong.

Senior economist at BMO Capital Markets, Sal Guatieri, noted that the situation is not desperate as of yet. Stating, “The U.S. economy isn’t falling off a cliff, but it is losing stamina and risks contracting early this year. That should limit the Fed to just two more small increases in coming months.”

The connection between consumer spending, the labor market, and the looming recession are interconnected; embroiled by the actions of the Federal Reserve. How that impacts the crypto sector in the short term is worth observing.

Crypto Reaction to GDP

The New York Department of Financial Services (NYDFS) issued a guideline for cryptocurrency firms to implement a high level of customer protection.
Source: SHRM

The movement of the U.S. economy, and how the digital asset sector responds, is still an imperfect science. The relative youth of the industry and the careful and near-unprecedented action of the last two years have left little room for certain patterns and metrics to develop. Leading to why this moment of observation is so interesting.

Reuters reported today that Blackstone Inc., the world’s largest manager of alternative assets, saw a drop in fourth-quarter distributable earnings by 41% year on year. Distributable earnings “represents the cash used to pay dividends to shareholders,” dropped from $2.3 billion to $1.3 billion.

Moreover, that translates to distributable earnings per share of $1.07, a number that still surpassed analysts’ projections of $0.95. Additionally, Reuters noted that “higher interest rates, inflation, recession worries, and geopolitical tension… have prevented private equity firms like Blackstone from selling assets for top dollar.”

The Bitcoin 7-day chart shows the world’s most prominent cryptocurrency hit $23,700 earlier this week. Alternatively, settling at $23K today. That data shows the number rise from $16.6k on the monthly. Ethereum, on the other hand, is currently sitting around $1.5K, with a 3.36% increase in the last 24 hours.

Currently, the cryptocurrency realm has reacted hopefully to the U.S. economic data that was divulged today, but the reaction is coated with caution over where those numbers could go. The GDP showed lessened growth, and the actions of the Federal Reserve throughout the last year should maintain a sense of investor concern throughout the year.