Will the crypto market really form a double top bull market as the Fed’s rate hike is expected to increase?

According to recent data from the U.S. Department of Labor, in April, the U.S. CPI jumped 4.2% year-over-year, exceeding the market expectation of 3.6%, the highest growth rate since September 2008; the YoY growth of 0.8% was also the highest since June 2008.

Will the crypto market really form a double top bull market as the Fed's rate hike is expected to increase?

According to recent data from the U.S. Department of Labor, in April, the U.S. CPI jumped 4.2% year-over-year, exceeding market expectations of 3.6%, the growth rate hit a new high since September 2008; chain growth of 0.8%, also hit the highest since June 2008.

Against the backdrop of growing inflation, the Fed’s rate hike is also gaining strength. Before the Fed really started to raise interest rates, the central banks of Turkey, Russia and Brazil had started the process of raising interest rates in March, and it seems that the global financial market has entered into “tightening”.

So how will the crypto industry be affected by the deflationary expectations? Will there be a “double top” bull market in the crypto market similar to the one in 2013?

1、From inflation to interest rate hike
According to a May 24 report by Punch News, Americans shopping at supermarkets are finding that they can only spend $100 on food that used to cost less than $80. Ms. Ria, who lives in Alhambra, California, said: beef used to be about $5.99 a pound, but now it has risen to about $12; leeks have become $3 a pound, compared to $1.25 before; and rice, noodles and other staples have also risen by about 5%.

The unprecedented fiscal stimulus and the surge in the money supply are the root causes of all this happening.

First look at the fiscal stimulus. To avoid a long and painful recession caused by the epidemic, the U.S. government has launched two consecutive trillion-dollar stimulus packages after the change of government, and by March 2021, the cumulative size of the U.S. fiscal stimulus has reached $5 trillion.

In addition, Reuters reported on May 28 that the White House submitted a $6 trillion budget plan to Congress that would increase spending on infrastructure, education and combating climate change, including a $2 trillion infrastructure plan as well as a $1.8 trillion household plan. These stimulus policies will undoubtedly increase the money supply substantially and boost inflationary pressures.

The second is the surge in the U.S. money supply, which has increased by nearly 30% this year alone. The Fed has put in trillions of dollars of money over the past year, and the resulting expansion in the money supply is the largest since the Great Depression.

The year-over-year percentage change in the U.S. money M2 supply has reached 23%, and according to Federal Reserve records dating back to 1981, the year-over-year increase in the M2 money supply has never exceeded 15% until 2020.

Inflation is not “unique” to the United States.

Data show that Brazil’s IPCA (broad-based consumer price index) grew at a year-over-year rate of 5.2% in February, the highest level since 2017. Russia’s CPI grew at a year-over-year rate of 5.67% in February, the highest level since November 2016. Turkey’s inflation rate so far this year is even closer to 16%.

This is the law of the economy: too loose monetary policy inevitably brings a flood of money, which in turn leads to price increases and excessive prosperity in financial markets, followed by the expectation of central banks to raise interest rates, and then the financial markets begin to “squeeze the bubble”.

If the U.S. inflation only brings “interest rate hike expectations,” then some emerging economies are the rate hike is a solid implementation.

For example, on March 17, Brazil’s central bank announced that the benchmark interest rate will be raised from 2% to 2.75%; on March 18, Turkey raised the benchmark interest rate by 200 basis points to 19%; on March 19, the Russian central bank announced that the benchmark interest rate will be raised by 0.25 percentage points to 4.5%.

The question arises, will the mere expectation of Fed rate hike end the cryptocurrency bull market in this way?

  1. Will the crypto market double-top bull or single-top bull under the expectation of interest rate hike?
    Regarding the impact of the Fed’s interest rate hike, in a reply to a fan’s question, Song Bingshan, founder of Zunjia Finance, once said.

“The Fed’s rate hike is not terrible, the rate hike is a process that is added gradually, and the early stage of the rate hike will have a small negative impact on the U.S. stocks because the rate hike means the economy is overheated, and only in the late stage of the rate hike will there be a large negative impact on the financial market.”

According to Song Bingshan’s view, even if the Fed’s interest rate hike is expected to keep increasing, even in the real pre-rate hike, it will not have much negative impact on the financial markets.

So, the question arises, as the Fed’s rate hike is expected to flourish day by day, if this will not end the stock market bull market early, will the crypto bull market end early? After all, the U.S. stock market and the crypto market belong to different ecosystems. You may have to look at history to find the “answer” to this question.

Looking back at the 12-year history of Bitcoin, perhaps we can only find a similar case in the 2013 Bitcoin bull market. Only we need to shift our attention to QE.

The so-called QE (Quantitative Easing), or quantitative easing, is a way of intervening to encourage spending and borrowing by increasing the supply of base money and injecting large amounts of liquid funds into the market through the purchase of medium- and long-term bonds, such as Treasury bonds, after the central bank has implemented a zero interest rate or near-zero interest rate policy, also described in simplified terms as indirectly printing more money.

In the first half of 2013, based on economic expectations at the time, the Federal Reserve proposed an expected timetable for the exit of easy monetary policy, setting an exit path from reducing QE asset purchases, to stopping QE altogether, and then raising interest rates. The move triggered significant volatility in international markets, with emerging markets experiencing the most severe capital outflows since 2008.

Has the Fed’s tapering of QE had an impact on bitcoin?

Looking back at Bitcoin’s bull run in 2013, when it was in the first phase of the 2013 bull market, Bitcoin hit $195 before plummeting to touch a low of $75, a 61.5% drop.

However, in the 7 months since then, bitcoin has come out of another bull market after a bottom shakeout, hitting a high of $1,052. If you calculate from the bottom at $66, bitcoin rose nearly 1600% in the second round of the bull market.

However, the real cut in QE by the Fed happened in early 2014.

The Fed initiated the QE exit mechanism in 2014 and has announced three rounds of QE size reduction arrangements, tapering the asset purchase size of QE three times since January, February and April 2014, respectively, with each downward adjustment of $10 billion in monthly asset purchases. Since April 2014, the monthly asset purchase size of QE has been reduced to $55 billion, of which the monthly purchases of Treasuries and MBS are $30 billion and $25 billion, respectively.

In summary, if the Fed’s QE cuts did have an impact on bitcoin, it was only 1 month before the “boots hit the ground”. Bitcoin experienced a bull market in April 2013, and a second bull market 7 months after that, until November 30, 2013 when the price really peaked and then turned down.

So, will the current bull market see a double top bull market? We’ll see.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/will-the-crypto-market-really-form-a-double-top-bull-market-as-the-feds-rate-hike-is-expected-to-increase/
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.

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