The US economy and Bitcoin prices


Similar to stocks, Bitcoin and the cryptocurrency market have also been hit by sell pressure after the Fed announced an upcoming robust interest rate hike to address worryingly rising inflation in the US.

The impact of US policies on Bitcoin

Many analysts argue that tech stocks and the cryptocurrencies with them have soared over the past two years thanks largely to Fed and government stimulus. Over the past two years, the correlation between Bitcoin prices and the Nasdaq tech stock index has grown by a lot. And so many argue that a likely monetary tightening by the US central bank could have heavy repercussions on Bitcoin prices.

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“The massive amount of savings created by working-from-home stimulus found its way into the most speculative of risk assets including meme stocks and bitcoin”,

said Peter Cecchini, director of research at Axonic Capital, in a note a week ago.

The declines recorded in the last two months, which have practically halved the value of the cryptocurrency market’s capitalization, according to some experts would therefore be the beginning of the so-called “crypto winter” indicating with this a long period of declines.

But not everyone thinks so.  A few days ago, in a report, the investment bank JPMorgan has defined the current decline in the cryptocurrency market as a simple momentary correction, predicting a probable rebound during the year.

And in fact, in the past few days Bitcoin prices have had a rise of more than 5%, after investors reacted to lower than expected economic data by selling dollars. The new weakness of the greenback indicates that some investors think that disappointing economic data could lead to a reassessment of the Fed, regarding the increase of interest rates.

According to the forecasts and statements of the Fed in 2022, there could be at least 3 or 4 rate hikes, and this can only affect Wall Street prices and therefore also consequently those of the cryptocurrency market. But the new worse-than-expected data and the non-unanimity of the board on the extent of similar rate intervention could also lead to a revision of the US central bank’s policy during the year.

Bitcoin FED
Bitcoin may not be affected by the Fed’s policies

Why Bitcoin might not be affected by Fed policies

Since the record high at $69,000 in November, Bitcoin’s prices have fallen by almost 40%, while all the biggest companies related to the crypto market have suffered heavy losses on the stock exchange: 

  • Coinbase is down 32%; 
  • Marathon Digital is down 60%; 
  • Riot Blockchain marks -49%, 
  • MicroStrategy -43%.

Many analysts including those of JPMorgan argue that the prices of Bitcoin and cryptocurrencies in general, may be less affected by the Fed’s policy, because they would be supported by new uses determined by the exponential explosion of the DeFi market and that of NFTs.

It is difficult to say whether Bitcoin can also represent, as many claim, a tool against inflation and therefore can benefit from an increase in inflation during the current year.

 





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