Bitcoin Plays With USD 24K As Traders Speculate Fed Pivot And US Recession
The price of bitcoin (BTC) traded above USD 24,000 on Friday morning (UTC), hitting a nearly 7-week high, following news that the US has entered what many consider a technical recession, as well as speculation that US Federal Reserve (The Fed) will soon move from aggressive tightening to easing.
The gains in the crypto market this week started on Wednesday, when the Fed announced its latest rate hike of 75 basis points in the US, a move that would normally be seen as negative for risk assets. But since the rally was largely expected by market participants, attention shifted instead to the tone of the Fed’s statement and Fed Chair Jerome Powell’s press conference, which was seen as slightly less aggressive than before.
At his press conference, Powell said “another unusually large increase may be appropriate at the next meeting” in September. However, he also added that as rates become more restrictive, it will likely be appropriate to “slow the increase.”
In addition, bullish sentiment among traders was bolstered by comments from Powell that a rate of 2.25% to 2.5% by the Fed is considered “neutral.”
The wording has puzzled many, including well-known investor Bill Ackman, founder and CEO of Pershing Square Capital Managementwho wrote on Twitter that it “makes no sense” to call a 2.25% to 2.5% interest rate neutral when inflation is 9%.
The comment was picked up by Sven Henrich, a popular trader on crypto Twitter and founder of NorthmanTraderwho advised his followers to watch closely for any new comments from Fed officials in the coming days.
In particular, some have already warned that the market may have misread Powell, stressing that the Fed remains committed to bringing down inflation.
“Markets shot first and asked questions later,” Neil Dutta, head of the American Economic Research at Renaissance Macro Research LLCtold Bloomberg in.
Dutta added that he does not think inflation will come down in a way that makes interest rate cuts plausible.
“Powell said repeatedly that the economy needs to slow down to meet their goals. A modest recession probably won’t do the job. They’re going to have to do more,” Dutta said.
The same article cited Roberto Perli and Benson Durham of the investment bank Piper Sandler as saying that the market reaction was classic for situations where “the odds of rate cuts had increased or their timing had been accelerated.”
However, Powell’s comments “were not the words of a Fed chair veering toward a dovish stance,” Durham and Perli cautioned.
Meanwhile, the latest gains in the crypto market came as US gross domestic product (GDP) figures for the second quarter on Thursday showed a 0.9% decline. This followed a decline of 1.6% in the first quarter.
Two consecutive quarters of negative GDP growth are considered by many to be the very definition of a recession. However White Houses have refuted that the US is in a recession, pointing instead to other economic indicators such as the labor market, which they say show the US economy remains strong.
Nevertheless, Mati Greenspan, founder and CEO of Quantum economicsclaimed in a newsletter Thursday that,
“It’s official, the US economy is now in a technical recession. Stocks and other risk assets are having a great day.”
A recession in the US has been interpreted as another sign that the Fed will soon be forced to slow the pace of interest rate hikes, and eventually move to cutting rates again.
This was also pointed out by Greenspan, who further noted that regardless of a technical recession, high inflation, interest rate increases and other risks, “investors are clearly optimistic about the future.”
On Friday at 12:06 UTC, BTC stood at USD 23,723, up 2.6% in the last 24 hours and 2.5% in the last 7 days. At the same time, ethereum (ETH) traded at USD 1,680, up 2.4% for the day and 6.7% for the week.
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Learn more:
– US Fed fires another 75 basis point rate hike with record high inflation, Bitcoin and Ethereum Jump
– We now understand how little we understand about inflation – Fed’s Powell
– US GDP falls again
– Inflation is the Boogeyman from 2022
– The European Central Bank raises interest rates for the first time in 11 years
– Pandemic is the biggest threat to the markets in the next decade – FTX CEO
