Coindesk | David Z. Morris | Jan 25, 2023

Global inflation is at a turning point. Here’s what that could mean for crypto’s nascent turnaround

• 2023 crypto bounce:  Blue-chip crypto assets including bitcoin (BTC) and ether (ETH) have had a very nice 2023 so far, with BTC up roughly 36% since the New Year and ETH up close to 30%. There’s growing reason to think that “the bottom is in” for crypto markets, and some macroeconomic data suggests this year will be much brighter for the sector than 2022

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• Why?  [arguably] the crypto bottom could be in since bad actors and the consequences of their contagion-spreading leverage plays have been flushed out. Certainly on an emotional level, getting rid of the likes of Alex Mashinsky, Do Kwon, Three Arrows Capital and Sam Bankman-Fried feels like the chance for a new beginning.
  • While getting rid of scammers should mean we’ve cleared some major downside tail risks, it hardly amounts to grounds for a new crypto bull market.
  • Instead, what will matter most over the next year are macroeconomic conditions, particularly the impact of inflation and interest rates on crypto and other risky assets.  The inflation picture is complex worldwide, but the current rally in BTC and ETH seem to reflect a rising sense that America specifically is on a path to not only whipping inflation, but maybe even to a “soft landing” that stops inflation without crushing jobs.
• Europe may not be as likely to get a soft landing as the U.S. The European Central Bank, seemingly still concerned about inflation, has signaled a continuation of more aggressive rate hikes in the coming months.

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• China continues teetering on the edge of something darker than inflation, or even mere recession.
  • though COVID-19 infections have now fallen dramatically since the surprise end of “Zero-COVID” lockdowns in December, more disruptive surges seem likely to be in the cards.
  • China still faces an ongoing housing crash that threatens the very foundations of its still-developing financial system. Following a crackdown on indebted and corrupt developers in 2020, housing prices have continued slumping – in fact, the decline accelerated in December. That’s potentially catastrophic, because housing makes up a disproportionate 45% of Chinese household wealth compared to a more typical 25% in the U.S., according to Federal Reserve data.
  • Those impacts could include COVID disruptions so severe that they continue to disrupt Chinese manufacturing, possibly making inflation worse globally.

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