After the Fed released the hawkish signal, why did Bitcoin not fluctuate sharply?


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The possible reason is that the previous inflation expectations have been included in the price of Bitcoin, so when the Fed expressed its position, market stability is instead a “hedging phenomenon.”

Written by: Jeff Benson
Translation: Moni

In the early morning of June 17, Powell appeared at a press conference after the two-day Federal Open Market Committee (FOMC) meeting. He announced the interest rate resolution (implying that it is expected to raise interest rates twice by the end of 2023), policy statement, and The quarterly release of the Economic Expectation (SEP) and the announcement of the Federal Reserve to maintain the benchmark interest rate in the 0-0.25% range and the US$120 billion bond purchase plan. At the same time, the Federal Reserve will maintain the benchmark interest rate unchanged to a level close to zero, and it still plans to continue to purchase US$80 billion in US Treasury bonds and US$40 billion in mortgage-backed securities (MBS) every month.

Powell said:

“The impact of the new crown virus epidemic is waning. With the reopening of cities in the United States, market demand changes may be large and rapid. We will encounter some bottlenecks, labor difficulties and other restrictions, which may affect market supply adjustments. This has led to higher and more lasting inflation growth expectations.”

There is no doubt that the Fed controls the dollar’s ​​money supply. They hope to keep the United States’ long-term inflation rate at around 2%. Although inflation reduces the dollar’s ​​purchasing power, it can theoretically help promote employment, at least in the short term. Previously, the inflation rate in the United States was indeed lower than 2% for a long time, but due to the new crown virus epidemic last year, the Federal Reserve introduced a quantitative easing monetary policy, resulting in the current inflation rate being much higher than the target value of 2%. In March of this year, 11 Federal Open Market Committee officials agreed to keep interest rates close to zero until at least 2023, indicating that the Fed will tighten monetary policy in 2024. As we all know, the inflation rate in the United States has been rising in recent months, and the US consumer price index in April reached the largest year-on-year increase in the past 13 years.

The Fed did not discuss whether it is appropriate to raise interest rates in a particular year at the latest interest rate resolution meeting, but as far as future interest rate actions are concerned, the dot plot of interest rate expectations is not a good predictor. The Fed’s focus is on the state of the economy, not on raising interest rates. Higher neutral interest rates will provide more room for the Fed to cut interest rates, and remain vigilant against factors that push up neutral interest rates. On the other hand, there is still uncertainty about the time point when inflation tends to ease. The Fed does indeed expect inflation to fall, and inflation expectations have turned to decline, which means that upward pressure on inflation is temporary. But the problem is that inflation in the United States has reached the highest level since 2008. Although Fed Chairman Powell believes that inflation will eventually fade, he admits that it may still stay at the current level for a period of time in the near future, and that the inflation rate may rise further. .

Judging from the current stage, the Fed’s most important meeting has indeed released a hawkish signal. QCP Capital, headquartered in Singapore, previously analyzed that if the Fed still chooses a dovish approach—that is, continues to retain a monetary policy that supports quantitative easing to stimulate the economy—in view of the CPI data released in May this year, we can see macro-market inflation expectations. The upward trend is accelerating, which may indicate that cryptocurrencies will have greater upside potential until at least September; however, if the hawks win, the prices of Bitcoin and even the broader crypto assets may be suppressed.

However, it is “interesting” that after Powell’s remarks, the market price of Bitcoin and the broader cryptocurrency market does not seem to be affected. At the time of writing, according to data from Coingecko, the price of Bitcoin was $38,638.38, 24 The hourly decline was 3.1%. Frankly speaking, the Bitcoin market has always been cautious about the Federal Reserve. For example, on May 19, Bitcoin fell from $58,000 to nearly $30,000 in just eight days. Many people found that the official data released on May 12 It shows that the US consumer price index has soared to the highest level in the past three years, and this may be a factor that caused the price of Bitcoin to fall sharply. In theory, because the total supply is capped at 21 million, Bitcoin is deflationary, so the “purchasing power” of Bitcoin should continue to increase as the adoption rate expands. In fact, Bloomberg Intelligence analysis believes that once Bitcoin settles under the new threshold with greater market depth, volatility will decrease.

From this perspective, after the Fed released the hawkish signal, the stable market reaction was probably because the previous inflation expectations had been included in the bitcoin price. Therefore, when the Fed stated its position, market stability was instead a kind of “hedging.” Phenomenon”-Looking at it this way, it is unexpected and reasonable that the price of Bitcoin has not fluctuated sharply.

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