Ruslan Lienkha, head of markets at fintech platform YouHodler, recently shared his analysis and forecast on the crypto sector and the complex macroeconomic situation in the USA, where the fate of markets is inexorably linked to the Fed monetary policies.
Dollar inflation is still too high, although it has fallen significantly since the beginning of the year, and the US central bank’s “quantitative tightening” phase seems destined to have to continue until the end of 2023.
In fact, most likely no rate cuts on government bonds will be applied until mid-2024.
What are the consequences of these dynamics for the crypto market?
Let’s look at all the details together
Summary
Crypto markets and the USA economy: the Fed does not expect any interest rate cuts until mid-2024
YouHodler’s head of markets, Ruslan Lienkha, recently analyzed the delicate macroeconomic environment in the US in which we find ourselves, reflecting on the effects that could spill over to the crypto market.
We find ourselves at the beginning of the fourth quarter of 2023, with a still strong USA economy despite warnings about possible recession risks, at the end of a cycle of interest rate hikes that has seen the FED slowing economic stimulus over the past 2 years.
After a decade of expansionary monetary policies, low borrowing costs, and strong markets, in early 2022 we stumbled into one of the most financially challenging situations for the US to manage, with an ongoing war and dollar inflation out of control.
The consumer price index (minus food and energy) in the US is reversing its trend and is seeing a sharp slowdown in the last year, but remains at too high a value, equal to the values of the early 1990s.
On the rate front, the odds for the next FED meeting in November go for keeping rates unchanged at 525-550 basis points, while the chances of a hike to 550-575 basis points in December have recently increased.
After a possible continuation of quantitative tightening in the last month of the year, Jerome Powell‘s phase of rate hikes should give way to quantitative easing by mid-2024.
As of June 2024, in fact, we can glimpse on the “FedWatch tool” an estimated 36 percent probability of the beginning of a reversal on this front.
This would lead the more speculative markets, such as the crypto market, to celebrate given the liquidity that could be injected into the business markets by the USA central bank.
In Europe, inflation in the Eurozone is more worrisome, and the upcoming ECB meetings are expected to sanction a further rate hike, with the cost of debt rising once again hurting borrowers and benefiting banks.
It should also be noted that several European countries are already officially in recessions having seen two consecutive quarters of negative GDP, with ongoing housing crises and declining industrial production.
In China, the danger of a crisis and contamination on all world markets is even greater given the continued economic slowdown and growing problems on the banking and real estate sectors.
Speaking of real estate, back in the US we can see that despite the stress of the previous months, the situation does not seem to be critical and definitely different from what it was in 2008.
There are problems related to the debt ceiling crisis and banking crises with several commercial institutions facing bankruptcy or already affected (see Silicon Valley Bank).
In any case, Wall Street analysts are no longer as concerned as they were a few months ago and now fears of an “imminent recession” have given way to speculation of a likely “soft landing.”
The consequences for the crypto market: analysis and forecasts from YouHodler
Focusing on the crypto front, let’s see what are the possible scenarios analyzed by Ruslan Lienkha and what are the consequences of a restrictive policy of the Fed In the USA with rates going up or remaining unchanged until the middle of next year.
As we all know, decisions on the cost of debt influence a lot of speculative markets since investors, seeing high rates, are incentivized to lend their capital in the bond environment enjoying high returns at low risk.
Most likely Bitcoin, and all the rest of the crypto market, will only return to see strong price rises in conjunction with the first rate cut, which, as mentioned, is estimated for June 2023.
Nevertheless, You Hodler and his head of markets believe that, in the best-case scenario, BTC can reach $35,000 to $40,000 by the end of 2023.
In the worst-case scenario, however, we should not fall below $20,000, where a key psychological resistance lies.
Determining what the crypto sector’s performance will be between now and the next 3 months is surely the SEC and its upcoming decisions on a spot ETF for the market’s first cryptocurrency.
Having no arguments to reject the implementation of such a financial instrument in the U.S., Gary Gensler and his team are expected to approve the first ETF indicatively in late 2023 or early 2024.
Some think the most likely date is in January or March 2023, where several deadlines converge that the SEC will have to definitively respond to, such as those of Ark, BlackRock, Bitwise, VanEck, Wisdomtree, Invesco, Fidelity, and Valkyrie.
At the moment, the situation for the fourth quarter of 2023 is still very uncertain: an environment of general growth and evolution of blockchain technology and increasing interest from institutional investors bodes well for an increasingly rosy future, but in the short term, fears of a further downward phase in prices are upon us.
Trading volumes are very low on the exchanges, which does not help to contain the dangers of manipulation and a continuation of the bearish market.
Be that as it may, the road in the medium term now seems to have been mapped out: by mid-2024 we could very easily see the return of the bull market with the issues related to the Fed’s monetary policies in the U.S. overlapping with Bitcoin’s fourth halving that will take place in April.
Hang in there HODLERs!
