Relevance up to 11:00 2022-06-13 UTC–4
In our recent articles, we have repeatedly said that bitcoin can continue its decline. In principle, the factors of its decline have not changed at all over the past few months. Recall that the more the Fed tightens monetary policy, the lower the demand for risky assets. And it is very difficult to find a riskier asset than bitcoin. We also recall that there are two types of personalities in the market and in the media space who publicly express their forecasts. The first are those who are interested in cryptocurrency market growth. The more often, the better, because their income depends on it. The second is disinterested crypto experts. It is noteworthy that the former constantly predict the growth of bitcoin, and the latter are very skeptical about this forecast. For example, Stifel chief strategist Barry Bannister believes that it is because of the Fed’s actions that bitcoin may fall to $ 10,000. Here it is immediately worth remembering that the Fed will not raise the rate immediately to 3% or 3.5%. It will take some time. According to our estimates, such a rate level can be reached no earlier than the first half of 2023. Consequently, all this time the rate will increase, and the money supply under the QT program will decrease by $ 100 billion per month. Naturally, in such conditions, it will be difficult for bitcoin not to grow, but simply not to devalue. Bannister also noted that in times of rising rates, investors pay more attention to bonds and deposits. Consequently, the demand for these investment instruments will grow, while the demand for others will fall.
In addition, Bannister drew a parallel with inflation. He noted that the Fed will raise rates just enough for inflation to return to 2%. Probably, the Stifel strategist wanted to hint that all is not lost for bitcoin, since inflation may return to the target level before rates rise to 3.5%. But, from our point of view, just the opposite, inflation even at 3.5% of the rate may not return to 2% due to the strongest impact on prices of external factors that are beyond the control of either the Fed or any other central banks. Now we see that the Bank of England and the Fed have raised rates to 1%, and inflation has been growing and continues to grow. Thus, high inflation is very bad for bitcoin, as it means that monetary policy will be tightened longer and stronger. And, as we can see, no one now uses “hype” bitcoin as a means of hedging inflation, which is at the highest level in 40 years. Although, it would seem that now is the time. But bitcoin has never been a means of hedging inflation, as it was fashionable to believe at the end of last year.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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