Federal Reserve’s fight against inflation is bad for Bitcoin, says Bitfury CEO

The Federal Reserve’s (Fed) war on inflation is suppressing the price of Bitcoin, says Bitfury CEO Brian Brooks.

According to the Bitfury CEO, traders do not perceive BTC as a great hedge against inflation during periods of extreme fiscal tightening. For that reason, hodlers can expect the price of BTC to remain relatively low at least in the short term.

In a brief but pointed interview with CNBC on August 29, Brooks also criticized the SEC for its litigious handling of the crypto industry, saying regulators need to “get serious” and offer proper guidance instead of going to the courts.

Fight inflation

US inflation is currently at 8.5%, down slightly from the recent 40-year high of 9.1% in July, but still well above the target rate of 2%. Until recently, it was widely believed in the cryptosphere that deflationary assets like Bitcoin would do well in such a high inflation environment.

However, this theory has been put to the test in recent months and found wanting. The price of Bitcoin today hovers around the $20,000 mark, down 60% from just a year ago.

According to Brooks, the Fed’s aggressive response to high inflationary pressures has cooled the market.

“We’ve talked about the idea that bitcoin is an inflation hedge,” Brooks told CNBC. “The more the market expects tough policy from the Fed, the more people believe that the Fed is going to keep an aggressive stance, and that will tend to hurt Bitcoin.”

Since the beginning of the year, the Fed has pursued a policy of aggressive fiscal tightening, which increases the cost of borrowing through interest rates. At the start of 2022, interest rates were close to zero. The Fed raised interest rates by 0.25% in March, 0.50% in May, 0.75% in June and 0.75% in July. In total, the rates have been raised by 2.25% since the start of the year.

Another reason for Bitcoin’s perceived underperformance could be due to the type of inflation that the current market is facing. According to Steven Lubka of Swan Bitcoin, BTC only performs well in inflationary environments caused by currency devaluation, or in layman’s terms – monetary pressure. Right now, the bulk of inflation is driven by supply chain disruptions and shortages of essential commodities such as wheat and oil.

Get serious guys

While Brooks didn’t exactly speak well of the Fed and its economic policies, most of his fervor seemed reserved for the Securities and Exchange Commission (SEC).

Brooks was particularly irritated by the SEC’s approach to regulation in the cryptosphere that is light on actionable guidance and heavy on litigation. It has also hurt Bitcoin and the wider market.

“Regulation doesn’t mean suing people, and the approach the SEC has had over the last couple of years has been to not tell anyone what the rules are up front, but to sue people after they start a project, start a company or list a token, and made people deduce what the rules were later on. That’s not a good thing, and at some point Congress and regulators have to get serious about telling people, ‘what’s the speed limit on the crypto highway?'” Brooks said.

Brooks’ words appear to echo similar statements made by Superintendent Adrienne A. Harris of the New York State Department of Financial Services (DFS). In June, Harris, a veteran political operative who has stated his intention to work toward a fairer crypto regulatory landscape, wrote, stating, “We should have transparency about what the rules of the road are,” and steer away from “regulation of enforcement.”

Should such an environment ever be fostered, Brooks would not be the only member of the crypto community to celebrate. For now, the guesswork continues.

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