Crypto roundtable: The impact of the Fed’s rate suspension decision

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The Federal Reserve’s decision to suspend interest rate hikes may not have surprised anyone, but its impact on the markets is less easy to predict.

What will be the impact on investors in Bitcoin (BTC-USD) and other cryptos? Seeking Alpha contacted several analysts for their opinion within minutes of the announcement.

How will the June 14 Fed rate hike decision impact crypto prices?

Kennan Mell: Historically, Bitcoin has outperformed during periods of risky trading, and these periods are often catalyzed by the Fed pausing or ending a rate hike cycle. This means that the Fed’s decision to suspend rate hikes should be good for Bitcoin.

The Fed also signaled that it may continue to raise rates in the future. However, Bitcoin’s scarcity fundamentally justifies its use as a store of value instead of a risky asset. Bitcoin’s performance since inflation rose has been lackluster, but on par with traditional inflation hedges like gold and silver. If investors come to believe that inflation is entrenched and the Fed continues to climb, that could be good for all inflation hedges, including Bitcoin.

In short, there is a bullish case for Bitcoin whether or not the Fed pause marks the end of this rate hike cycle.

Logan Kane: Today’s FOMC meeting shows broad consensus in favor of raising interest rates and keeping rates high longer than market expectations. If the Fed neglects to act on this and fails to contain inflation, Bitcoin will serve as a hedge with an asymmetric rise. However, with cash rates expected to hit around 5.75%, I don’t see much use for the other 10,000 altcoins in existence.

Mike Fay, BlockChain Reaction: With rates unchanged in a unanimous decision, the question now is whether the Fed is done, or is it just a brief pause while the central bank waits for more data?

Markets are panicking in response to the news, and I suspect the real direction will only take shape after Federal Reserve Chairman Jerome Powell finishes answering questions. We will have a better near-term direction indication for Bitcoin and the alts in the days ahead. What I think is worth watching is the correlation between BTC and stocks. Asset classes have been negatively correlated for weeks. If the break in rates turns out to be a “buy the rumour, sell the news” event for stocks, we could see BTC and stocks correlate – but not in the way we might hope.

David Huston: Nasdaq (NASDAQ:QQQ) and Bitcoin, as well as Ethereum (ETH-USD), are quite closely correlated, as you can see from the chart that shows Bitcoin against the S&P 500 Futures (SPX ) and Nasdaq below. As I wrote before, trend is a big driver of crypto and currently Bitcoin is trading below its 23-day moving average, which is bearish. The Fed has instituted a “hawkish pause” – and it is focused on watching the data but signaling to the market that further increases are in the cards. Crypto and Nasdaq are both sensitive to interest rate movements, and we should expect pressure in both markets as the time horizon to wait for an official break has been pushed to later this year.

Bitcoin against the SPX and QQQ over a 3-year period shows a strong correlation. (David Huston – Stock Charts)

Clem Chambers: The market would love to hear the new money tap turn on. Liquidity is certainly a bullish driver for crypto prices. The Fed isn’t going to give anyone premature hope, though. They understand that if you tell someone something good happened to them and then say you’re joking, that person will hate you. Ironically, if you tell them something terrible happened to them, tell them you’re kidding, they just laugh and think you’re a happy boy.

Meanwhile, the SEC threat to crypto makes everything the Fed does with interest rates look like a gnat bite.

Kevin George: The Fed paused as expected after 10 rate hikes, but still maintained a hawkish tone and left the door open for further action. After being taken aback by surging inflation, central banks won’t want to reverse their actions quickly and get caught up in an embarrassing yo-yo scenario, so the obsession with deep rate cuts is misguided. .

Crypto investors cling to the words of policymakers, but in reality, nothing has changed. At current rates, investors can earn up to 5.65% on CDs or high-interest savings accounts, fully insured up to $250,000 by the FDIC. Why would a big investor go into a DeFi project where they risk losing everything in a Terra-like explosion (LUC-USD)? The latest CPI print showed a drop to 4%, but even if rates are cut to 4% or even 3%, the same story holds.

There is also the big problem of regulation. Recent European MiCA regulations have shown a willingness to trace small amounts of just $2,000 and up in crypto transactions, rendering the original BTC architecture obsolete. Investors should also keep an eye on Binance with the recent drop in its native token BNB (BNB-USD). A sharp drop to the downside could trigger the collateral issues seen at FTX (FTT-USD).

The Terra and FTX issues have caused real harm to adoption potential and given regulators an excuse to take control of the industry.

John Miller: Federal Reserve tightening has driven the pricing of interest-rate-sensitive names and has weighed on the digital asset space since the start of the bull cycle last March. On the surface, today’s pause in fed funds rate hikes is likely grabbing headlines and further entrenching the notion of a “political pivot” in crypto markets.

But Fed participants’ expectations for year-end rates continue to rise with each successive release of their summary of economic projections. The median participant is now targeting a rate between 5.5% and 5.75%, up sharply from 5.0% and 5.25% in the March release. And CME futures traders are now placing the highest probability on the fed funds rate hike by the December meeting, a sharp swing from yesterday’s trading.

At its core, this bearish outlook is still fueled by inflation expectations. The median Fed participant raised its year-end outlook for the important core PCE inflation gauge to between 3.9% and 4.0%. Sticky inflation means a hawkish Fed and a continued headwind for cryptocurrencies as regulatory battles heat up in the fall.

Stony Chambers Asset Research: The Fed chose not to hike, but announced two more rate hikes in the future. He maintains the view that inflation is above target and needs more attention to control the market. It is important to note that central bankers must anticipate the response of the markets and therefore craft their message in such a way as to create a desired response. The markets, of course, know this too and might call the bluff. The result is clearly a game with unstable balances.

It is best to watch the broader market reaction over the next week to glean insights into what will happen to the crypto. It’s rather nuanced.

On the one hand, Bitcoin is beginning to separate from other coins, not least as it becomes increasingly clear that it is immune to the recent SEC drama. The ex-BTC crypto is rather oversold, and this pause in the ups is potentially bullish for these far more speculative altcoins.

If the broader stock market continues to rise/stay flat over the next week, I think we’ll largely see a flat/mild bullish market for BTC for a month or two, assuming nothing madness from happening during this time. Altcoins will be much more volatile and have the potential for a much better upside. If the S&P 500 (SPY) and Nasdaq (QQQ) start selling next week, altcoins will be destroyed. BTC will fall too, but it shouldn’t be as much as altcoins. Currently I am not buying any crypto except BTC.

Part 2 of the Seeking Alpha Crypto Roundtable is coming next week!

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