Crypto markets rally, but Ethereum struggles to keep pace with Bitcoin

On May 15, the cryptocurrency markets saw a 5.5% increase in total capitalization following the release of inflation and retail sales data from the United States. However, Ether (ETH) failed to fully capitalize on this bullish momentum. Ether last closed above $3,000 over five days ago and has underperformed the leading cryptocurrency, Bitcoin (BTC), by 22% since the start of 2024. 

U.S. macroeconomic data backs the rally in some scarce assets

Crypto markets responded positively to U.S. consumer price index (CPI) data showing a 3.4% year-over-year rise in April, which aligned with market expectations. However, retail sales data for April, released on May 15, unsettled investors as it indicated stability from the previous month, contrary to economists’ forecasts of a 0.4% increase. This development increased the likelihood of the U.S. Federal Reserve (Fed) implementing measures to stimulate the economy.

Even if the U.S. Fed decides to maintain interest rates above 5.25% for an extended period to control inflation, the central bank may resort to actions such as purchasing government securities to boost the money supply and reducing the discount rate at which banks borrow from the central bank. Essentially, even a hint of continued liquidity provision can shape economic expectations and behaviors.

Contrary to what might be expected, weaker economic activity is often seen as an indicator that more money will be injected into the system, which benefits investments in scarce assets like stocks, gold, and cryptocurrencies. Eventually, the government will need to issue more debt to fund these expansionary measures aimed at preventing an economic recession. Over time, inflation is likely to rise due to the additional money circulating, regardless of the interest rate.

Some analysts believe that the upcoming U.S. Securities and Exchange Commission (SEC) decision on May 23 regarding VanEck’s spot Ethereum ETF application is a key reason for Ethereum’s inability to surpass the $3,000 resistance level. The uncertainty surrounding this event leads traders to postpone their investment decisions until the outcome is more…

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