Cryptocurrencies and Macro-situation: Powell's Checkmate
27.09.2022 • Просмотров:

Cryptocurrencies and Macro-situation: Powell’s Checkmate


There is a shock in the markets due to the sudden increase in interest rates in the United States of America, although they were widely expected to some extent. An event that, as it always happens, caused huge volatility, especially in the first few hours after the announcement. Volatility has since subsided, although the tension for Bitcoin and the world of cryptocurrencies and risky assets in general will persist. Rather, the lack of calm, dictated by various situations at the macroeconomic level.

The stock market also reacted neutrally. Therefore, it can be assumed that the correlation between stocks and cryptocurrencies still persists.

This correlation is a big problem. If Bitcoin separates from stocks, there will be a chance that the cryptocurrency market will go its own way, and the bear market may end. However, if everything stays that way, then the bear market may last longer than some would like.

The only bright spot is the fact that the Bitcoin price has not yet left the range.

But, let’s sort it out in order.

On September 22, it was not the rate hike in this round that scared the markets, but the Fed’s clear plan to raise the rate by at least 100 bps over the next two meetings (and thus by at least 50 bps at each FOMC meeting). Moreover, the markets even seem to have stocked up on a rate increase of 125 bps. A situation that will be caused by inflation, which does not even want to hear about a return to normal.

The rate of inflation in the United States. Source: U.S. Bureau of Labor Statistics

A situation that, however, for many is also an opportunity for accumulation, given prices that are very close to the lows of the bulk of cryptocurrencies.

Inflation is the first enemy

Jerome Powell spoke sharply and clearly, rejecting many of the fluctuations that took place at previous FOMC meetings, and at the same time outlined a clearer and very aggressive strategy, although taking into account (as he himself noted) monthly trends in inflation and the labor market. This is a complex situation that needs to be analyzed in parts, first in the United States, and then move on to what is happening away from Washington.

Even if it costs hundreds of thousands of jobs in the US, as Jerome Powell hinted to even the less diehard. This is due to two reasons: if high inflation is confirmed as stable, it will eventually become part of the normal economic situation, which will cause much more damage in the medium and long term.

Secondly, because the employment data in the United States continues to look quite strong, which means that hundreds of thousands of jobs can be spent, especially since the head of the Central Bank is speaking, and not a politician who will be accountable to the population.

The fact remains that it seems that this is the path laid by Powell, unless under political pressure there is a return to calmer views in view of the midterm elections, elections that Americans expect to renew parts of Congress and other offices of state and federal importance.

A “soft landing” is becoming less likely

Powell, it seems, at the same time, believes much less in the possibility of a “soft landing”. Firstly, because it is enough to look at the market trends to understand that not only in the crypto market everything is not so calm anymore. And even if the crash stopped today, talking about a “soft landing” would be an unprecedented mockery.

According to the data of , all risky assets, including Bitcoin, Ethereum, other cryptocurrencies and even the riskiest stocks suffered terrible losses and seem to have found the bottom even in the face of increasingly aggressive statements by the Fed.

Total market capitalization

But, again, talking about a soft landing would be bordering on madness.

In the rest of the world, the tension is much worse.

The good news is that the bulk of the market will depend on US performance, at least at the financial level. The bad news is that there are several situations in the rest of the world that seem much more complicated than what is happening in Washington.

  • Europe

There is very little time left to solve the energy crisis. And the industrial world is waiting for winter with an absolute shortage of energy and insane costs. Just as citizens will probably have to make huge sacrifices in their homes.

Meanwhile, although the ECB is relatively aggressive on interest rates, it does not have much leeway. The debts of countries such as France, Italy and others are already under enormous stress, and too much fun playing the “surgeon” with the base rate is not possible in the coming months. And all this with inflation, which, at least in part, depends on crazy energy prices, which were provoked even before the geopolitical crisis in Eastern Europe, and which only worsened.

A “stuck-up” Europe, which for some, should also begin to come to terms with the spiral of wage inflation. It has not been launched yet, because statistically wage growth has been very modest compared to the reality of average prices.

  • Japan

Last week was also important for the Bank of Japan, the equivalent of the Federal Reserve System in Tokyo. There will be no rate increase, but this will be followed by operations on the free market to protect the value of the yen.

Even this situation, for a country suffering from more than two decades of stagnant growth, does not seem to allow investors to sleep peacefully. And this will be a situation that needs to be monitored, because a very significant part of the world economy depends on this country.

Among other things, the Central Bank’s intervention in the Forex market was the first since 1998, which indicates the extraordinary crisis moment for Japan and its currency.

  • Switzerland 

The active policy of the Central Bank regulating the exchange rate of the Swiss franc. The latest increase by 75 basis points brought the discount rate into positive territory and full openness to market operations conducted directly by the central bank to protect the value of the Swiss franc on international markets. It is true, although no one wants to talk about it, that the performance of the Swiss economy will depend on Germany’s ability to get out of the trap into which it has driven itself. Further rate increases cannot be ruled out in the near future.

  • China

It seems that China has freer hands in terms of stimulating the economy, and it is going its own way. However, Western economies are mainly interested in returning to the normal operation of the supply chain. Normality, which may not be absolute, but relative, but in any case sufficient to help bring prices to a more normal level, and thereby reduce the inflation rate. This is also a situation that needs to be monitored further.

  • Developing countries

However heterogeneous this ensemble may be, there are several situations that need to be monitored, in particular with regard to the sustainability of various government debts denominated in foreign currency and, in particular, in dollars. We have already seen how Sri Lanka has lost the reins of its economy, and many are calling for many other situations to be monitored.

The good news is that the market has already discounted all these situations

The picture is particularly gloomy, but for the most optimistic, it still has some positive consequences. For some, the market has already made a discount on the current situation, and therefore from now on we may have a kind of bottom from which to start looking for bullish trends.

It is also true that many cryptocurrencies and Bitcoin are traded at fairly low price levels, which in the long run bring wealth to those who continue to follow the accumulation plan.

What is the Bottom for Bitcoin

A question that no one can answer today.

The rest will have to live for today, with some optimism for those who have really gone for a longer-term perspective in the cryptocurrency. Everything is postponed until the beginning of November, when we will get the next episode in the scary, but also exciting saga of betting in the USA. Will the Fed be able to “pull the oars” or will we get another 75 basis point increase? We don’t know, nor does Jerome Powell, who will be waiting for inflation data.

Should we be scared?

The cryptocurrency market has suffered from the collapse of leveraged positions, which has affected many major players in the sector, in particular funds and landing platforms. The reaction to the bids was intense, but limited, which is a sign that perhaps a normal situation has come.

That is, provided that the macrocosm as a whole does not suffer any other troubles, which, of course, no one can exclude.