Bitcoin plunged more than 15% in the last 24 hours to around $21,000, and the overall cryptocurrency market fell below $1 trillion on Monday. Whether this week’s bearish start will be followed by a major downturn or some relief could depend on next week’s Federal Reserve (FED) meeting.
In the U.S., the year-over-year consumer price index rose at its fastest pace since December 1981. Inflation has not “leveled off” as Fed Chairman Jerome Powell expected in May.
Many analysts believe this is forcing the Fed to take a hawkish stance and predict the next rate hike will be higher than previously announced. However, others believe it is unlikely that the Fed will surprise investors with a higher rate hike, so the hawkish scenario remains questionable.
- However, the fear of a recession is here, and with it the bears.
In a report published by Bloomberg, Marko Kolanovic, strategist at JPMorgan Chase & Co, explained why the next move will likely remain dovish.
“Friday’s strong CPI data has led to a spike in yields, which combined with the weekend sell-off in cryptocurrencies is clouding investor sentiment and pushing markets lower. …… However, we believe the repricing of the interest rate market has gone too far and that the Fed will be cautious relative to the prices that are now entering the curve. of surprise.”
However, Michael Feroli, an economist at JP Morgan, believes the opposite and expects a 75 basis point increase.
Guy LeBas, meanwhile, explained the mechanisms of FOMC meetings, “Most of the time there are two realistic options – A and B – but in the case of an unusual change, the price of the currency will rise. ” – but in times of unusual change or volatility, sometimes there are more. By the way, there are archived Cyan books here for the curious.”
“I’m willing to bet that Option A is a 50 basis point hike, followed by a faster pace of rate increases. Option B is a 75 basis point hike with a neutral bias. Option C, if serious, could include a faster pace of balance sheet repair.
LeBas was referring to a Wall Street Journal article that also claimed that a “troubling inflation report” could lead to an unexpected 75 basis point Fed rate hike.
The WSJ article cites earlier remarks by Fed Chairman Jerome Powell, as well as an analysis by several Wall Street forecasters: “Two consumer surveys also show that household expectations for future inflation have risen in recent days.”
On the one hand, Powell had said, “We need to see clear and convincing evidence that inflationary pressures are easing and inflation is coming down. If that’s not the case, we need to consider more aggressive action. If we consider the inflation report, this could be a 0.75 basis point scenario.
Still, LeBas believes that “both Option A and Option B are good options for June. I am leaning most towards A (hawkish 50).”
“JP Morgan expects a 75 basis point hike on Wednesday. I would say that’s unlikely to happen and that bitcoin will reverse at 50 basis points or less.”
Some investors seem to agree with the conclusion that the “market is down.”
Anything below 75 basis points is usually considered beneficial for Bitcoin, but is the U.S. economy in too deep a hole for 50 basis points to have any real impact on the market?
Mark R. Painter, president of EverGuide Financial Group, LLC, believes that 50 basis points or 75 basis points “ultimately doesn’t matter because they made a policy mistake and the short-term move is nothing more than closing positions.”
So the big question for Bitcoin is whether the Fed holding back can actually bring about a recovery/reversal, or whether this bear market has more investor tears to shed. As usual, both could happen, but it remains unlikely that the crypto winter will end with a 50 basis point rate hike.