Ouyi Research Institute: Where will the crypto market go from the Fed rate hike “the dust settles”

On March 17, the much-watched Fed rate hike finally settled: the Fed announced that it would raise the target range of the federal funds rate by 25 basis points to a level of 0.25% to 0.5%, basically in line with market expectations.

Fed Chair Jerome Powell said: “If we think it’s appropriate to raise rates by 50 basis points, we’ll do it, and we can pretty well conclude that we need to do more quickly. The Fed has yet to make a decision on the next rate adjustment, monetary policy cannot 100% solve the inflation problem, and we do not expect progress on inflation in the near term.

Ouyi Research Institute believes that the Federal Reserve has issued hawkish remarks several times in the context of high inflation, saying that it is imperative to curb inflation through continuous interest rate hikes. The market responded earlier than the official landing, and some funds left early. The market was on the sidelines to avoid the risks brought about by the tightening of monetary policy, so the market performance was relatively moderate after the announcement of the interest rate hike.

It is worth noting that this rate hike, as the first rate hike by the Federal Reserve since December 2018, is just the beginning, and the follow-up will continue to raise the benchmark interest rate and affect the global financial market. The plan to shrink the balance sheet announced in May as soon as possible will also bring more uncertainty to the market.

Why the Fed is raising interest rates:

Open the way for bargain-hunting global assets?

When the world is concerned about the Fed raising interest rates and why they are raising interest rates, let’s talk about who the Fed is?

The Federal Reserve is the largest holder of U.S. federal debt. The Federal Reserve System of the United States consists of the Federal Reserve Board in Washington, D.C. and 12 regional Federal Reserve Banks located in major cities across the country. The actual function is the central bank of the United States. The Federal Reserve obtains power from the United States Congress to exercise the duties of formulating monetary policy and supervising financial institutions in the United States.

As the central bank of the United States, the Federal Reserve shoulders the dual mission of maintaining price stability and promoting full employment. And interest rates are one of the most important tools for the Fed to achieve its policy goals, because interest rates can affect both unemployment and inflation.

Ouyi Research Institute: Where will the crypto market go from the Fed rate hike "the dust settles"

According to common sense in economics, although interest rate cuts will stimulate employment, they may trigger inflation, so encrypted assets and gold may become tools to fight inflation. Conversely, while raising interest rates will curb inflation and cool down economic growth, it will also lead to higher interest rates, reduced social capital flows, and lower consumer demand.

More intuitively, as bank interest increases, residents’ deposits of hot money will also increase accordingly. Liquidity in financial markets, including securities and encrypted assets, will decrease, and a large amount of funds will flow back to banks, posing a huge negative.

It can be seen that raising interest rates will not only have an impact on the financial market, but also further affect the consumer market. So why does the Fed raise interest rates? Because the U.S. dollar is the universal currency of the world, its tidal effect will affect the global economic situation, which in turn will bring about asset price fluctuations around the world. The United States can just adjust its monetary policy to complete the harvest of other countries. To put it simply, the interest rate hike has caused capital from various countries to flee the country and return to the United States. The price of high-quality assets such as land, enterprises, and minerals has plummeted, and Wall Street capital, which holds huge amounts of money, can buy dips at low prices at this time. , gain several times the usual income.

Under the catalysis of the black swan event of the new crown epidemic, global capital has accelerated to return to the relatively prosperous United States to complete the purpose of hedging and increasing value. Now, the United States has confirmed that raising interest rates will further exacerbate the economic dilemma of the vast majority of less developed countries.

This round of U.S. interest rate hikes is inevitable.

and brought a chain reaction

Previously, the outbreak of the new crown epidemic forced the Federal Reserve to release water, temporarily delaying the recession of the US economy, and also driving the continued rise in the price of encrypted assets. However, the money printed by the Federal Reserve due to the epidemic always needs real asset support. In the final analysis, raising interest rates is to allow global assets to flow to the United States to support the economic recovery of the United States, increase the initiative of the dollar, and stabilize its global dominance.

Ouyi Research Institute: Where will the crypto market go from the Fed rate hike "the dust settles"

According to the U.S. Department of Labor, the U.S. consumer price index soared 7.9 percent in February from a year earlier, hitting a 40-year high. This means that interest rate hikes are already on the horizon. Therefore, no matter from which point of view, this rate hike is inevitable. Of course, the U.S. interest rate hike will definitely cause a chain reaction. We simply list two typical examples:

The first is the wave of interest rate hikes around the world. The Fed’s interest rate hike has prompted many central banks around the world to follow suit to minimize the possibility of their own capital withdrawing to the United States, which has triggered a wave of interest rate hikes around the world.

Looking back at the interest rate decisions of major central banks in the past week, the Bank of England raised the benchmark interest rate from 0.5% to 0.75%; the Bank of Japan kept the benchmark interest rate unchanged at -0.1%, and kept the 10-year government bond yield target unchanged at around 0% ; Brazil’s central bank raised interest rates by 100 basis points to 11.75%.

Of course, the Fed’s rate hike was actually within expectations, and the entire global market has fully expressed its expectation of this rate hike. The capital market has responded in advance and has not been severely affected for the time being.

Ouyi Research Institute: Where will the crypto market go from the Fed rate hike "the dust settles"

(Data source: Ouyi OKX)

Second is the change in global commodity prices. Due to the global energy tension and supply chain disruption caused by the continuous Russian-Ukrainian conflict, commodity prices rose widely. For example, the US WTI crude oil futures price once exceeded 130 US dollars / barrel, and gold soared to a record high of 2,058 US dollars / ounce.

In addition to this Fed rate hike, the global commodity prices have been raised again. Of course, the logic is well understood. To a certain extent, the capital market overflow funds have flooded into the consumer market. For example, the price of wheat futures has soared from US$8 per bushel to more than US$12. .

However, what worries investors in the crypto circle the most is the specific impact of interest rate hikes on the market outlook of digital assets. After all, this affects the rise and fall of our wealth.

How will Fed rate hikes affect cryptocurrencies?

The dust of the Fed’s interest rate hike has settled, announcing that it will raise the target range of the federal funds rate by 25 basis points to a level of 0.25% to 0.5%, cut the median GDP growth forecast for this year by 1.2 percentage points to 2.8%, and reduce this year’s inflation expectations. , The median core PCE price index rose 1.4 percentage points to 4.1%. Fed Chairman Powell said that the Fed’s top priority is to restore inflation to 2%, and shrinking the balance sheet is equivalent to raising interest rates in disguise and is an effective tool for tightening monetary policy. 

Ouyi Research Institute: Where will the crypto market go from the Fed rate hike "the dust settles"

As the Fed’s first rate hike since December 2018, this rate hike will naturally have a profound impact on the crypto asset market. Ouyi Research Institute believes that raising interest rates will lead to a reduction in market liquidity, bank interest rates and Treasury bond yields will increase, and the dollar will appreciate. Funds invested in financial management returned to the banks, treasury bonds and the dollar market. This means that the crypto circle will face the risk of selling, the funds voted with your feet will flow into stable investment channels such as bank bonds, the liquidity of the market will be drawn away, and there will be more uncertainty in the market outlook with weakened support .

Looking back at the Fed rate hike in 2018, it was at a time when the global economic growth momentum was declining and demand was slowing. The subsequent US economy was in a state of moderate recovery, and the inflation rate did not reach a high point.

Looking at the trend of the crypto circle, this is worrying: Bitcoin fell from $13,234 at the beginning of 2018 to $3,638 at the end of 2018. From the Bitcoin K-line trend of the following European trading platform, it can be concluded that the impact of the Fed’s interest rate hike on the cryptocurrency at that time was still great.

Ouyi Research Institute: Where will the crypto market go from the Fed rate hike "the dust settles"

(Data source: Ouyi OKX)

To sum up, the Ouyi Research Institute believes that if the Fed continues to raise interest rates six times in a row as planned, the impact on the crypto market will be huge. In the face of the Federal Reserve’s announcement of raising interest rates, Bitcoin does not seem to have entered a falling market, but all this has been rehearsed in advance.

At the end of last year, the U.S. Federal Reserve announced that it would begin scaling back bond purchases and signaled higher interest rates, and crypto assets have started a downward pattern. Therefore, we can regard this slight fluctuation in the market as a sign that this bad news has been released earlier. As crypto investor Michael Novogratz judges, with the Federal Reserve raising interest rates, Bitcoin is likely to continue to trade within a price range this year without a sharp rise.

In addition, the “Wall Street Journal” reported that the Federal Reserve’s first interest rate hike in more than three years kicked off multiple subsequent interest rate hikes, with the goal of preventing the U.S. economy from overheating and controlling inflation that hit a 40-year high. In the future, the game between interest rates and inflation will be both a challenge and an opportunity for encrypted assets. In this regard, investors in the crypto circle should pay attention in real time and avoid risks.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/ouyi-research-institute-where-will-the-crypto-market-go-from-the-fed-rate-hike-the-dust-settles/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2022-03-27 11:09
Next 2022-03-27 11:10

Related articles