BlackRock Issues Stark Fed Warning After Huge Bitcoin and Ethereum Boom

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BitcoinBTC, Ethereum and other major cryptocurrencies surged in the first three months of 2023, with some predicting the huge price rally may just be beginning.

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The price of bitcoin, following a brutal crash in 2022, has risen around 70% since early January, with traders increasingly betting that the Federal Reserve is about to declare victory in its war against inflation or the risk of triggering hyperinflation.

Now, analysts at the world’s largest asset manager, BlackRockBLK, have warned the market was wrong to bet the Fed is about to turn dovish, predicting higher interest rates are here to stay.

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“We believe the Fed could only deliver the rate cuts expected by the markets if a more severe credit crunch takes hold and causes an even deeper recession than expected,” BlackRock strategists wrote in a note seen by Bloomberg.

The banking crisis that engulfed Silicon Valley Bank, Signature Bank and Silvergate before spreading to Europe is thought to have been partly caused by the Fed’s rapid series of interest rate hikes, adding to expectations that the The Fed would be forced to cut rates in the coming months. However, banks have stabilized this week, fueling hopes that the problems are contained.

“This damage is now at the forefront and central central banks are finally being forced to address it,” the BlackRock analysts wrote. “We believe this means they are about to enter the new phase of fighting inflation that we have signaled. We see major central banks moving away from a no matter what approach. , stop their hikes and enter a more nuanced phase that is less about an uphill battle with inflation, but still one where they can’t cut rates.”

The bitcoin, ethereum and broader crypto price boom so far this year has been fueled by “continued confidence in an impending Federal Reserve rate cut,” wrote senior analyst Alex Kuptsikevich. of the market at FxPro, in a note.

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Bitcoin’s rebound this year has erased some of the damage caused by bitcoin’s huge price crash in 2022.

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Earlier this month, Fed Chairman Jerome Powell told Congress that there was still a “long way to go” to reduce inflation which hit a 40-year high in 2022. spending, hiring and consumer confidence have all held up better than some expected. despite the Fed’s hawkish stance.

“With consumer resilience shining again, there is growing expectation that the Federal Reserve will raise interest rates again at the next meeting, but it is still believed to be close to the top. peak rates, especially as bank lending is expected to tighten, causing a drag on the economy,” wrote Susannah Streeter, head of currency and markets at brokerage Hargreaves Lansdown, in a note sent by mail. electronic.

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