The Current Landscape of U.S. Consumer Credit and Its Impact on Risk Assets
The recent fluctuations in the financial markets have drawn attention to the dynamics of consumer credit, particularly in the context of the yen carry trade. While the unwinding of this trade may have paused since Monday, leading to a stabilization in various risk assets, including bitcoin (BTC), there remain significant underlying risks that cannot be overlooked. Markus Thielen, the founder of 10x Research, has drawn attention to the recent data regarding U.S. consumer borrowing, which suggests a worrying trend for both consumers and the broader market.
According to data released by the Federal Reserve, total credit outstanding increased by $8.9 billion in June, following a revised increase of $13.9 billion in May. However, this figure fell short of the consensus estimate, which anticipated a $10 billion increase. Such a discrepancy indicates that consumer borrowing is not only slowing but may also be experiencing a fundamental shift. The details reveal that revolving debt, which includes credit cards, declined by $1.7 billion—the largest decrease since early 2021. This trend raises concerns about consumer spending power and the overall health of household finances.
In contrast, non-revolving debt, which encompasses loans for student tuition and auto purchases, rose by $10.6 billion. This is noteworthy as it marks the most significant increase in non-revolving debt in a year, suggesting that consumers are turning to long-term loans for essential expenses rather than relying on credit cards. However, this shift raises questions about the sustainability of household finances, especially in light of rising delinquency rates across various loan types.
The Worrying Rise in Delinquency Rates
The rise in delinquency rates is particularly alarming. In the June quarter, the percentage of credit card holders who were 90 days or more late on their payments reached 10.93%, which is the highest level recorded since the first quarter of 2012. Additionally, auto loan delinquencies have surged to 4.43%, the highest since 2021. These figures are indicative of a broader issue: many U.S. consumers are reaching their borrowing limits, which poses a significant challenge to optimistic narratives surrounding risk assets like cryptocurrencies.
Thielen emphasizes the implications of this data, noting that the decline in U.S. consumer credit—from $11.3 billion to $8.9 billion—coupled with rare instances of negative credit card debt and skyrocketing delinquency rates, signals a collapsing personal savings rate. This trend is particularly concerning for the crypto market, as it suggests that the onramp for converting fiat currency to cryptocurrencies will remain constrained by the financial limitations of U.S. consumers.
Broader Economic Concerns and Their Implications for Cryptocurrency
In addition to the troubling consumer credit data, Thielen points out several macroeconomic uncertainties that could further impact the crypto market. The uncertainty surrounding the upcoming U.S. election, combined with a slowing economy, adds layers of complexity to the financial landscape. Investors are particularly wary of how political changes could influence fiscal policies and market regulations, which in turn could affect investments in risk assets like bitcoin and other cryptocurrencies.
Moreover, the excitement surrounding artificial intelligence (AI), a sector that has seen explosive growth over the past few years, appears to be dwindling. For instance, shares of Nvidia (NVDA), often considered a bellwether for AI-related investments, peaked in June at approximately $140 but have since fallen to around $98. This decline reflects a broader market correction and raises questions about the sustainability of growth in this sector.
Current Market Status for Bitcoin
As for bitcoin, it is currently trading at approximately $56,800, marking a decline of about 10% over the past week, according to data from CoinDesk. This drop is indicative of a broader bearish sentiment in the market, which is influenced by both consumer credit trends and macroeconomic factors. Investors are increasingly cautious, weighing the potential for further declines against the backdrop of a challenging economic environment.
Conclusion
In summary, the current state of U.S. consumer credit presents a complex picture influenced by various factors, including rising delinquency rates and a potential slowdown in consumer spending. As risk assets like bitcoin navigate this challenging landscape, investors must remain vigilant and consider the broader economic implications that could shape the future of cryptocurrencies.