Today, the Federal Reserve provided the strongest signal yet of an upcoming rise in the interest rate, which will then be the first since December 2018. This provided quite a cold shower for the stock markets, which had been up significantly earlier in the day following strong results by industry bellwethers such as Microsoft Corp. and Texas Instruments Inc.
What's fascinating is how quickly things went downhill within minutes of Jerome Powell, the head of the FED, delivering his statements. If this was crypto, you would know a shitcoin by the way in which a single person could easily cause a pump or dump this way (unless it's Elon).
Looking at the main key indexes, the U turn is quite something:
- Dow Jones was up 1.28%, but ended down 0.38%
- Nasdaq was up 3.32%, but ended up 0.02%
- S&P 500 was up 2.09%, but ended down 0.15%
And the news was not even that surprising. Following record inflation levels, the market had already priced in (presumably) that there would likely be up to four rate hikes of 0.25% each throughout 2022. But the rhetoric and implied urgency became means for more uncertainty and speculation that it could happen even sooner and perhaps in bigger bulks.
One way or the other, people should ask themselves to what extent they want one isolated group of people to have this much power...
Bitcoin was no exception. For now.
The news had just as significant of an effect on the price of Bitcoin. With Jerome speaking at 20:00 GMT+1, you can see how the price peaked just at the same minute he was going live, only for it to crash within 10 minutes later. Even Justin Sun must be jealous of his ability to pump and dump.
To me, this shows that we're not "early" in crypto like we were in 2017-2018 which also saw multiple rate hikes without seeming to care much. However, it also means that we're not yet where we can and should be, and thus have a long way to go in terms of growth in value.
I think my fellow Norwegian Alex Gladstein said it best in a Tweet:
Stage 1: Bitcoin too small to react to Fed policy
Stage 2: Bitcoin big enough to react to Fed policy (you are here)
Stage 3: Bitcoin too big to react to Fed policy-Alex Gladstein on Twitter
Building on that statement, I think Bitcoin's care for the interest rate shows another theory that I have. Namely that the bottoms we see on the long-term trend line going steadily up is represented by the growth in adoption and conviction by people who are bringing in the new, while the spiky peaks and valleys on top of it represent the greed and speculation of the old.
As I wrote back in November in an article called Is Bitcoin no longer the uncorrelated asset that it used to be?, the influx of institutional money into Bitcoin and crypto will make it more correlated with the rest of the market and macroeconomic picture. If you want the hedge fund's pumps, you'll have to accept their dumps too. But should Bitcoin continue to grow in adoption and value, and the hedger's dumps go into the hands of HODLers with strong conviction, then that influence will vane over time.
But for now, I think the best is to simply buckle up, and see the volatility as the opportunity that it is.
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They dont move markets. People in the markets move them. The fact that people are reacting to the Fed's statement, which contained no surprise, shows the insanity of markets.
Who didnt know the Fed was going to talk about rate hikes? It was not kept a secret. And the Fed, the ultimate manager in expectations since that is all they can affect, is only doing what everyone and their brother was complaining about: inflation.
Ironic when the Fed gives the market (and all the talking heads) what they want, they still have a cow. Of course, the Fed has no chance of 4 rate hikes. I bet even 2 is a stretch.
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That right there is worth to stop and reflect on. I was quite surprised to see such a strong reaction to something that appeared to have been priced in for the most part. My guess is that this non-news will be shaken off tomorrow.
I am not. Too many are indoctrinated into the power of the Fed. They believe this entity actually has power to fix things. It does not.
With interest rates, their own research shows the impact of moves in the Fed Funds rate diminishes at the 5Y and has no correlation at the 10Y, which has a huge correlation to mortgage rates.
So the rates most people care about the Fed has no impact upon.
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I agree with you that it will be probably inevitable that Bitcoin will be corelated with the stock markets. Especially if a lot of funds will buy in. This will help adoption and make people educate themselves more.
I think in the long term Bitcoin will be its own asset class :)
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It is the risk on, risk off trade.
Cryptocurrency is not decoupled from that. For all the touting of safety, it is not a flight to safety choice for the markets. It is still speculation, hence will sell off when people are jittery.
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Very interesting article summarizing a lot of my thoughts and opinions.
I did not know this tweet from Alex Gladstein but I like it very much !
From a macro perspective, I agree he has too much power but raising interest rates fast and steady is needed as inflation is getting out of hand.
That might be the only thing I agree with them over the past few years !
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What power does he have?
And what makes you think that the Fed can move interest rates?
The Fed's own research reveals it isnt true. They can move the short end of the yield curve but that is all.
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Well, he and the institution have the power to change monetary policy for the US and therefore most of the world (especially emerging markets which are based on the dollar).
Maybe he can influence only the short-end but if the short-end part of the curve changes, the long will mostly follow. Just a small talk changed crypto and stock markets didn’t it ?
Justin Sun would be jealous… good one 😂
When I see this powerful people affecting the market so easily, I always wonder: how many individuals around these powerful people are experience serious gains of their assets. I know inside trading is heavily monitored, but there mist be some way to circumvent this.
volatility is the most exciting thing in the crypto world, and since I joined here they have always told me that the money we are willing to lose can be invested. #BTC is an opportunity to improve our lives.
It does seem like Bitcoin has become a lot more correlated with the legacy financial markets than it used to be... and perhaps we'd have to concede that this is the "price" of mass adoption, to an extent.
I would submit that people — who largely behave like a flock of sheep — GIVE people like Jerome Powell (and Elon Musk, and others) too much power. They stop thinking for themselves... and instead fall into group think. Which is really a sad reflection on the world.
Closer to home, makes one wonder how many rushed out and started selling their Hive because it went from $1.50 to below 80 cents... without giving even a second thought to whether or not the underlying prospects of Hive actually changed over that period of time... which, of course, it didn't.
It is a strange world, in which we live!