Bitcoin (BTC) has the potential to become a “good bet” for investors if the Federal Reserve does all it can to keep the US economy afloat against the risks of an impending recession, according to popular Bitcoin analyst Jack .
The independent market analyst pitted the flagship cryptocurrency, often called “digital gold” by its enthusiasts, against the prospect of further quantitative easing from the US central bank, noting that the military standoff in course between Ukraine and Russia had stifled the supply chain of essential goods. , such as oil and wheat, driving up global inflation.
For example, consumer prices in Europe jumped up 5.8% year-over-year in February, down from 5.1% the previous month, higher than economists’ median forecast of 5.6% in a recent Bloomberg survey.
Interestingly, the energy sector led the ups and downs of expectations by recording a price increase of 31%, well above that of food and services.
Similarly, the US consumer price index (CPI) rose 7.5% year-on-year in January 2022, its highest level in nearly four decades.
Jack hinted that lingering inflationary risks from the Russia-Ukraine crisis could leave the Fed with two options.
First, they could raise interest rates aggressively to bring inflation down, thereby increasing the risks of a recession. Or, they could continue their quantitative easing program only to weigh on the economy with higher consumer prices and weaker US dollar purchasing power.
“If the easing continues, inflation continues to rise, they [Bitcoin and gold] seem like good bets as long as a recession/crash is avoided,” Jack tweeted on March 2, adding:
“But if everything collapses, (almost) everything collapses and you buy the phoenixes rising from the ashes.”
Powell indicates aggressive rate hikes
Jack’s analogy surfaced hours before Federal Reserve Chairman Jerome Powell confirmed that he would propose a 25 basis point interest rate hike at the next meeting of the Federal Open Market Committee ( FOMC) in mid-March.
Powell noted that the Fed has been weighing the prospect of consecutive rate hikes for the rest of 2022. But Russia’s recent invasion of Ukraine prompted them to “proceed cautiously in the direction.”
“We will avoid adding uncertainty to what is already an extraordinarily difficult and uncertain time,” he told the House Financial Services Committee during his March 2 testimony.
However, Powell did not rule out the possibility of raising interest rates by half a percentage point if the next CPI readings are higher than expected. Excerpts:
“To the extent that inflation is higher or higher than that, we would be prepared to act more aggressively.”
Bitcoin’s Safe Haven Narrative Holds Up
Bitcoin continued to slide after Powell’s remarks, briefly dropping more than 2% to below $43,000 on March 3.
The downward move came in contrast to a jump in the U.S. dollar index (DXY), which rose 0.25% over the same period, suggesting global investors rushed to safety. greenback in the face of current economic and geopolitical uncertainty.
Appetite for safe havens also boosted Bitcoin demand earlier this week. On February 28, the price of BTC rose just over 14.50% in one day, recording its largest one-day increase in a year.
A report by Arcane Research claimed that Ukrainians seeking ‘powerful fundraising tools’ and Russians trying to circumvent ‘the toughest capital controls in decades’ were behind the surge in BTC price.
“This speculation may have contributed to the 15% rise in the price of Bitcoin over the past seven days,” Arcane Research wrote on March 1, adding that BTC/USD could then rise to $47,000.
Similarly, Bitcoin-based investment vehicles attracted $195 million in capital inflows from the start of the month through Feb. 25, according to the latest CoinShares report. revealed.
— Jan Wüstenfeld (@JanWues) March 2, 2022
Related: Billionaire Admits He Was Wrong About Bitcoin As Citadel Turns To Crypto Markets
But recession risks continued to cloud Bitcoin’s upside potential. For example, Brian Coulton, chief economist at Fitch Ratings, anticipated core inflation is expected to remain elevated through 2022, especially as the Ukraine-Russia crisis has heightened the risks of global price shocks.
“If core inflation remains elevated and inflation expectations rise, the Fed and the BOE may have no choice but to move rates quickly to neutral or restrictive levels,” he said. he writes, adding that this could push the fed funds rate to 3% by the end of 2022. Excerpts:
“US GDP growth could fall to 0.5% or less in 2023 under such a scenario, compared to Fitch’s baseline forecast of 1.9%.”
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