Aaron Chomsky Cryptocurrencies 26.08.2022 12:02
The cryptocurrency market continues to feverish, like all other assets due to the tightening of the policy of the US Central Bank and the increasing risks of stagflation. The bet that bitcoin will act as an insurance against inflation and a protective haven for investors against the background of turbulence in the economy has not been justified. The growing popularity of digital assets among large institutional investors has contributed to an increase in the degree of price interconnection of cryptocurrencies and high-tech stocks to record values.
If in 2020-2021 the growth of bitcoin was based on an unprecedented supply of liquidity from the central banks of Western countries, now that this market has become shallow and regulators have begun to aggressively raise rates in the fight against inflation, the reverse process has begun. And it will be continued in the near future. On August 26, at a symposium in Jackson Hole, Fed Chairman Jerome Powell may undermine the market’s faith in the Central Bank’s readiness to return to policy easing in the spring of 2023 – on these expectations, sentiment on Wall Street improved, which supported the recovery of bitcoin after the worst second quarter in the last 11 years. In other words, Powell’s speech can become a catalyst for new sales and a challenge for the cryptocurrency market.
Until the next meeting at the end of September, global investors will closely monitor the publication in the US of the labor market report (September 2) and inflation (September 13-14), which will determine the step of the next increase (0.5% or 0.75%) and the nature of the Fed’s subsequent rhetoric. If the monetary authorities continue to disappoint with their position on the rate trajectory and this is further confirmed in the new forecasts of the Central Bank, then it will be difficult for risky assets to avoid a new round of negative revaluation. For bitcoin, this will mean testing the June minimum ($17,600) with a move to lower levels (up to $12,000). In this case, the correction from the historical maximum within the current downward trend may increase from 75% to 83%.
In previous years, it exceeded 90% – this is the nature of assets.
In the medium term, the prerequisites for a return to record values will remain. The number of cryptocurrency users is growing in the world (up to 1 billion by 2030 from the current 300 million, according to the Boston Consulting Group), and the bitcoin supply is algorithmically limited to 21 million coins. However, it is obvious that a return to the growth trajectory will be possible only if the Fed policy reverses, which may happen only in 2023. For this reason, the best scenario would be a sideways movement above the June lows with high chances of updating this year’s anti-records.