The bitcoin price, following an almighty crash through the first half of 2022, has climbed from just over $20,000 per bitcoin to almost $25,000 while ethereum has soared higher as excitement builds over its looming upgrade and cofounder Vitalik Buterin reveals his “surge” expectations.
Now, following the U.S. recording two consecutive periods of economic contraction—the technical indicator of a recession—analysts are predicting the Fed could “sharply” slow its pace of interest rate hikes and “move to policy easing rather quickly.”
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“The current economic data indicates that the state’s tightening of monetary policy has already moved into a cooling-off phase and has returned to its long-term GDP growth trend,” Alex Kuptsikevich, FxPro senior market analyst, said in emailed comments.
“With such input data, the chances increase that the Fed will soon slow down sharply the pace of rate hikes and could move to policy easing rather quickly,” Kuptsikevich said, adding, “it is worth remembering that in 2018 the Fed raised its rate to 2.5%, which caused markets to collapse and forced the regulator to move to policy easing soon afterward.”
This year’s bitcoin and crypto market crash—wiping $2 trillion from the combined crypto market since late 2021—was triggered by early indications the Fed would begin to hike interest rates from historic lows and taper Covid-era stimulus measures to drive down soaring inflation.
This week, the bitcoin price surged higher following the Fed’s second 75-basis-point rate hike and dovish signals from Fed chair Jerome Powell. However, Treasury secretary Janet Yellen downplayed data that showed two consecutive quarters of U.S. economic decline. Yellen told reporters the definition of a recession is a “broad-based weakening of the economy” and “that is not what we’re seeing right now” partly due to the strength of the labor market.
“Eyes will now be turning towards any economic data that could conflict with the Fed’s targets,” Ben Small, an analyst at U.K.-based digital asset broker GlobalBlock. “Not only does the Federal Open Market Committee have to be willing to seriously harm growth prospects in the states, but also come to terms with the realities of a looming recession and a jobs market under serious pressure.”
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The bitcoin price, rallying 20% over the last month, has been cheered by those in the crypto industry who are again feeling more confident after the massive crypto crash.
“During times of market volatility, bitcoin is gradually and increasingly being recognized by the market as a secure store of value and source of stability,” Alex Adelman, the chief executive of bitcoin rewards app Lolli, said via email, pointing to bitcoin’s steadiness in the face of the Fed’s most recent interest rate hike, “intense inflationary pressure” and a second straight decline in GDP.
“This period of pressure in the markets will continue to differentiate bitcoin as unique among cryptocurrencies as a deflationary currency, given its fixed supply and decentralized nature.”