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MAY 25, 2023

POSSIBLE DEFAULT IMPACT ON CRYPTO MARKET

The CEO of Blockchain.com, Peter Smith, has indicated that a U.S. government default could lead to a temporary decline in the crypto market before causing a strong upward trend, as although a default could be negative for crypto in the short-term, it may cause a positive impact in the long-term. As of this morning, the top 10 cryptocurrencies have shown a shift from their previous downward trend, with some, like Bitcoin and Ethereum, experiencing slight increases, while others remaining relatively unchanged.

BIPARTISAN SOLUTION NEEDED

Tensions around the U.S. debt-limit negotiations have increased as Fitch Ratings warned that the country’s AAA rating, the highest credit rating, is at risk due to the increasing political disagreements, which are preventing a solution being found before June 1st deadline. As a result, the credit rating agency has placed the U.S. under “rating watch negative”. Experts warn that if the U.S. defaults on its debts, it could result in an economic downturn, leading to significant job losses and significantly higher borrowing costs. Lily Adams, a Treasury spokesperson, has said that Fitch’s warning highlights the critical need for Congress to swiftly create a bipartisan solution to raise or suspend the debt limit and prevent a manufactured economic crisis.

FED DIVIDED

During their recent meeting, Federal Reserve members disagreed on the future of interest rates, as some thought more hikes were needed, while others consider further rate increases unnecessary. Although all committee members agreed on a 0.25% hike in the benchmark rate, some expressed concerns regarding slow progress on reducing inflation, leading them to believe that the best way to address this issue is by increasing more rates. On the contrary, other members forecasted slowdowns in growth that would balance the need to tighten interest rates further. Moreover, despite differences, the committee ultimately voted to remove a key phrase from their statement, which indicated the necessity for additional policy actions in the future. Going forward, the Federal Reserve appears to be adopting a more data-driven approach, taking into account various factors when deciding on future rate hikes.

NVIDIA CONSIDERED AI LEADER

Nvidia Corp. has announced sales forecasts for the next quarter that surpassed analyst estimates. The company’s success is due to the increased demand for artificial intelligence processors and the retooling of data centers to handle accelerated computing. Nvidia has positioned itself as a leader in AI software. Consequently, Nvidia’s shares have risen, and its outlook shows that the company is succeeding despite a wider technology spending slowdown.

INTERNATIONAL NEWS

Germany has entered a technical recession after its economy shrank by 0.3% in the first quarter of this year, following a contraction of 0.5% at the end of last year. Households in Germany cut spending by 1.2%, with consumers hesitant to buy items such as clothing, furnishings, and cars. Claus Vistesen of Pantheon Macroeconomics argues that the main factor that led the country to fall into a recession was the downturn in energy prices. Meanwhile, Capital Economics’ Franziska Palmas expects the economy to continue to weaken due to high interest rates and inflation, particularly with the European Central Bank expected to increase rates again soon.

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