Subscribe now to Forbes’ CryptoAsset & Blockchain Advisor and successfully navigate the volatile bitcoin and crypto market
The bitcoin price has dropped to around $20,000 per bitcoin as traders digest the hotly-anticipated, bombshell comments made by Federal Reserve chair Jerome Powell last week where he promised to continue to raising rates to drive down inflation. Ethereum is meanwhile on the brink of its own earthquake that could play havoc with the ethereum price and other top ten coins BNB
Now, after one crypto exchange chief executive warned “anything could happen during the current crypto winter,” some predict the Fed could soon trigger a bitcoin and crypto price bull run.
Want to stay ahead of the market and understand the latest crypto news? Sign up now for the free CryptoCodex—A daily newsletter for traders, investors and the crypto-curious
“You’ll basically see the ‘great pause’ from the Fed,” Bill Barhydt, the chief executive of crypto wealth management platform Abra, told the Thinking Crypto podcast, explaining the “great pause” will come when the Fed’s “dramatic rate increases” have had “the intended effect of slowing price inflation” and the Fed puts its rate hikes on hold.
Last week, Fed chair Jerome Powell said he’s prepared to raise borrowing costs as high as needed to reduce inflation, currently running at more than three times the Fed’s 2% target. U.S. inflation cooled somewhat in July, the latest numbers showed, but the Consumer Price Index (CPI) still increased by 8.5% from a year earlier.
“I think it’s really going to be game on for equities and crypto as the money supply starts to increase dramatically as a result of the Fed pause and expectations in the bond market that we’re going to get back to the kind of downward channel that interest rates have been in for the last three decades,” Barhydt added, predicting the “great pause” will happen in October and continue through to early 2023.
The bitcoin and crypto market has crashed along with stock markets this year with the bitcoin price losing around 70% from its all-time highs of almost $70,000.
“Historically, such large drawdowns often make for a good time to buy,” Dan Ashmore, investing expert at Invezz, said via email. “The drawdown might be severe (and could still get worse), but over time the market is highly likely to rise back above its current level—especially since the Fed is unlikely to remain on the sidelines if things become truly bad.”
Sign up now for CryptoCodex—A free, daily newsletter for the crypto-curious
The Federal Reserve is expected to raise interest rates again at its September meeting, with futures contracts tied to the Fed policy reflecting trader bets that rates will rise 1.5 percentage points further before the end of year.
“Once these hikes ripple through the economy, earnings forecasts will drop and recession will hit, or hit harder, if you want to say we are there already,” Ashmore said. “The key question is then: ‘Does the Fed pivot and fire back up the money printer?’ Ultimately, this may be more of a political question than an economic one.”
In July, data showed the U.S. economy shrank for a second consecutive quarter, a common measure of a technical recession, with many economists forecasting a gloomy economic outlook.
However, others have argued the Fed will keep the pedal to the metal to ensure inflation doesn’t creep back.
“The Fed’s headline interest rate still looks very low relative to its own history and other periods when inflation drove the Misery Index [the economist Arthur Okun’s aggregate of the rate of inflation and the rate of unemployment] up, suggesting it wil keep hammering away at inflation, even if that inflicts pain on the jobs market and financial markets in the process,” Russ Mould, investment director at the broker AJ Bell, wrote in emailed comments.