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Concerns have been mounting lately regarding the possibility of the Federal Reserve instituting further interest rate hikes. However, resilient as ever, Bitcoin has held strong, defying many analysts’ expectations. This surprising trend aligns with the Fed Chair Jerome Powell’s communicated intentions of probable increases in the rate, to curb the current inflation situation.
Somewhat taken aback by Powell’s resolved determination expressed at the recent Jackson Hole symposium, investors reacted by reducing investments across varying asset classes including Bitcoin, according to Sam Callahan, the lead analyst at Swan Bitcoin. He reasons that the constant increment of “risk-free rates” is naturally channeling funds away from riskier assets, diverting potential gains towards Treasuries and money market funds.
However, with unemployment at historical lows and inflation beginning to stabilize from its peak levels, Callahan suggests that the Federal Reserve still has room to manoeuvre including further hikes, to achieve its targeted 2% inflation limit.
Conversely, despite this new stringent monetary policy stance, Bitcoin, usually labeled a precarious asset, seems to be thriving. Callahan partially accredits Bitcoin’s relative success to the unresolved fiscal issues governing current markets, pushing more investors to consider decentralized assets like Bitcoin as a viable alternative or hedge. He expounds on how the expansion of budget deficits as consequence of rate increments is deteriorating an already strained fiscal trajectory. The resulting fiscal instability intertwined with the newly tightened policies of the Federal Reserve might work in Bitcoin’s favor as investors become increasingly attuned to the long-term implications.
Ironically, Bitcoin’s market performance has been rather indifferent in response to the key inflation data this year, a stark contrast to its sensitivity in 2022. Callahan explains this anomaly by asserting that growing institutional interest might have helped stabilize the cryptocurrency. Citing BlackRock’s Bitcoin spot ETF application as a game changer, he predicts an increase in demand, and a more fluid route for retail investing in Bitcoin via traditional brokerage accounts.
In conclusion, notwithstanding fluctuating correlations with equities and susceptibility to Federal policies, Bitcoin remains a steadfast player. The digital asset garners a strong investor base seeking alternatives to mainstream finance, supported by its consistent resilience amidst the Federal Reserve’s stringent policies. The vacuum left by leveraged excesses, coupled with increased demand, is thus paving the way for Bitcoin’s next bull run.
Source: Cryptonews
