As the economic situation continues to worsen, financial pundits around the world are increasingly blaming the Federal Reserve, after the central bank was slow to respond to rising inflation early on.
Financial markets are currently experiencing their worst losing streak in recent memory and there seems to be no relief in sight as the tech-heavy Nasdaq fell another 2% on May 24, while Snap, a popular social media company, lost 43.1% of its market capitalization on the day of May 23.
This past couple of months have been absolutely brutal for the markets… 8 consecutive weeks of red candles in the #SPX, #NASDAQ and #BTC…no significant bounces pic.twitter.com/hgU2VwIoxh
— Crypto Phoenix (@CryptoPheonix1) May 24, 2022
Much of the recent turmoil is again due to the Federal Reserve, which has embarked on a mission to raise interest rates in an attempt to control inflation, outside of financial markets.
Here’s what a number of analysts are saying about how this process could play out and what it means for the price of Bitcoin (BTC) going forward.
Will the Fed Tighten Until Markets Break?
Unfortunately for investors looking for short-term relief, economist Alex Krüger believe that “the Fed will not stop tightening unless the markets break (far from it) or inflation falls considerably and for many months”.
One of the main problems plaguing the trader’s psyche is the fact that the Fed has not yet outlined what inflation would have to look like for it to take its foot off the accelerator on rate hikes. Instead, he merely reiterates his goal of “seeing clear and convincing evidence that inflation is approaching its 2% target.”
According to Krüger, the Fed “will need year-on-year inflation to decline by 0.25%-0.33% on average each month through September” if it wants to meet its target of bringing inflation down to the 4.3%-3.7% range by the end of the year.
Should the Fed fail to meet its PCE inflation target in September, Krüger warned of the possibility of the Fed initiating “more hikes than is priced in” and could also begin exploring the sale of mortgage-backed securities such as part of a quantitative tightening campaign.
Kruger said:
“Then the markets would start to shift to a new equilibrium and fall sharply.”
A setup for sustained double-digit inflation
The Fed’s responsibility in current market conditions was also addressed by billionaire investor and hedge fund manager Bill Ackman, who He suggested that “the only way to stop the current runaway inflation is with aggressive monetary tightening or a collapse of the economy.”
In opinion According to Ackman, the Fed’s slow response to inflation has significantly damaged its reputation, while its current policy and guidance “are setting us up for sustained double-digit inflation that can only be prevented by a market crash or rising massive interest rates”.
Due to these factors, the demand for equity exposure has been muted in 2022, a fact made evident by the recent decline in stock prices, especially in the technology sector. For example, the Nasdaq index, of great technological weight, has lost 26% in the year.
Given that the cryptocurrency sector is highly tech-focused, it is not surprising that weakness in the tech sector has translated into weakness in the cryptocurrency market, a trend that could persist until high inflation is somehow resolved. .
How could Bitcoin fare in 2023?
According to Krüger, the “baseline scenario for the next price path is a summer range beginning with a rally followed by a decline to lows.”
kruger said:
“In the case of BTC, that rally would take the price to the start of the Luna dump ($34,000-$35,500).”
Cryptocurrency trader and pseudonymous Twitter user “Rekt Capital”, who posted the following chart of Bitcoin relative to its 200-day moving average, offered more information on the price level to watch for a good entry point. in the future.
Rekt Capital said:
“Historically, the 200-day MA tends to offer fantastic opportunities with outsized ROI for long-term BTC investors (green circles). Should BTC actually reach the support of the 200-day MA…I would be wise pay attention”.
The total cryptocurrency market capitalization currently stands at $1.258 trillion and the dominance rate of Bitcoin is 44.5%.
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