Bitcoin lost over 15% within the past 24 hours, to $21k. The entire crypto market fell below $1 trillion Monday. Whether this gloomy start of the week will be followed by even more downside or some relief, could depend on next week’s meeting of the US Federal Reserve (FED).
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Dovish or Hawkish?
US sees the biggest year-on–year increase in Consumer Price Index since 1978. Inflation has not been “flattening out” as Fed Chair Jerome Powell expected in May.
This calls for a Fed that is hawkish and many analysts have forecasted that the Fed will raise interest rates higher than originally announced. Others believe that investors are unlikely to be surprised by a larger hike from the Fed, making a hawkish scenario more likely.
The bear market is also here, but the fears of recession are real.
JPMorgan Chase & Co. strategist Marko Kolanovic explained in a note shared by Bloomberg why the next move could remain dovish:
“Friday’s strong CPI print that led to a surge in yields, along with the sell-off in crypto over the weekend, are weighing on investor sentiment and driving the market lower… However, we believe rates market repricing went too far and the Fed will surprise dovishly relative to what is now priced into the curve.”
Michael Feroli from JPMorgan thinks otherwise and predicts that the rate will rise by 75bps.
Meanwhile, Guy LeBas explained the mechanics of what happens at an FOMC meeting, stating that “Most of the time there are two realistic choices–“A” and “B”–but in times of extraordinary change or volatility, there are sometimes more. Incidentally, archived teal books are available here for the curious.”
“I am willing to bet that Option A is a 50bps rate hike with hawkish guidance for a faster pace of hikes thereafter. Option B will be 75bps with neutral guidance. Option C, if it’s serious, probably includes a faster pace of balance sheet runoff.”
LeBas took into account a WSJ article that also claimed the “troubling inflation reports” could lead to a surprise 75bps interest rate hike by the Fed.
The WSJ article quotes “Two consumer surveys have also shown households’ expectations of future inflation have increased in recent days,” previous statements by Fed Chairman Jerome Powell, and the analysis of several Wall Street forecasters.
On one hand, Powell had said: “What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down. And if we don’t see that, then we’ll have to consider moving more aggressively.” This could paint a 0.75bps scenario if we take into account the inflation reports.
Nevertheless, LeBas thinks that “Option A and B are both good possibilities for June. I lean towards A (hawkish 50) as most probable.”
50 basis points is only “Hawkish” if this is a hawk: pic.twitter.com/eyZzuXVzyv
— Graham Sanders (@geswolfcrest) June 13, 2022
Similar, Twitter users can also do this. addedIt is difficult to live in.
“A. The Fed maintains 50bps. The Fed maintains 50bps because they are too slow for seriousness.
B. B. The Fed is viewed by the market as being panicking, and they have been going against their word since 2 weeks.
Market falls either way.”
But the analyst Michaël van de Poppe is also leaning toward “option A”:
“J.P. Morgan expects a 75bps increase for Wednesday. I would say that’s likely not going to happen and 50bps or lower is going to call the reverse on Bitcoin.”
Several investors seem to agree with the “market falls either way” conclusion.
Bitcoin can benefit from anything below 75bps, however is 50bps too low to really make a difference?
EverGuide Financial Group, LLC. Mark R. Painter thinks that 50bps or 75bps “In the end it doesn’t matter because they already made their policy error and short-term moves are nothing more than position unwinding.”
So the big question for bitcoin is whether a dovish FED could actually bring a rally/reversal, or if this bear market still has more investors’ tears to shed. Both scenarios are possible, however, it’s not certain that crypto winter with 50bps increases will end.
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