Fed’s Predicament is Bitcoin’s Opportunity: Why New Highs Are Possible In 2023
Despite recording small profits over the past few days, Bitcoin has been unable to break above its current range. As the macroeconomic landscape changes, the number one cryptocurrency has been stuck but could see new yearly highs in the coming months.
As of this writing, Bitcoin trades at $27,100 with a 1% profit in the last 24 hours. Over the last week, the number one cryptocurrency by market capitalization has recorded a 2% profit. Other cryptocurrencies in the top 10 by market cap have seen similar performance.
To Cut Or To Raise, The Fed Dilemma That Will Benefit Bitcoin
According to an essay from BitMEX founder Arthur Hayes, the U.S. banking crisis and macroeconomic uncertainty failed to push Bitcoin upwards. Hayes has been expecting aggressive upward price action for BTC in 2023, but the cryptocurrency has deviated from this trajectory despite favorable winds.
However, Hayes claims that the hopes for Bitcoin reaching new highs remain, even going as far as to predict that “the real bull market will begin” later this year. For now, and until Q3 to Q4 this year, the cryptocurrency will likely continue trading sideways.
The key factors pushing BTC upwards are dollar (USD) liquidity on financial markets and technology and adoption. The former will exercise a bigger influence in the coming months as the U.S. Federal Reserve (Fed) faces a predicament.
Until now, and since late 2021, the financial institution has been tightening economic conditions, leading to a decrease in USD liquidity. This status negatively impacted equities and risk-on assets, such as Bitcoin.
The Fed created the current financial situation by hiking interest rates; their objective was to slow down the highest inflation levels seen in the past 40 years. The financial institution has been successful, but its actions could backfire.
Inflation is coming down, but banks and other sectors of the world economy are suffering due to the increasing rates. Thus, the Fed must take two paths: cut or continue raising rates. Hayes argued the following on why Bitcoin is likely to benefit:
It sets up a situation wherein regardless of which path the Fed chooses, be it to hike or cut rates, they will accelerate inflation and catalyse a general rush for the exits from the parasitic fiat monetary financial system.
New Highs For BTC, But What Will Happen In The Short Term?
If the Fed raises interest rates, the banking crisis in the U.S. and the world could worsen. Thus, precipitating people’s exit to independent forms of money, such as Bitcoin, gold, and other commodities.
If the Fed cuts, the U.S. economy will grow, and the financial market could stand on the same hill as in 2021 when the BTC price hit an all-time high of $69,000. Hayes claims this happened because wealthy individuals had enough money to invest in risky assets.
As a result, BTC benefited and could do so again if the Fed cuts rates and USD liquidity increases. The BitMEX founder predicted:
I expect that Bitcoin will hold firm here. I do not believe we will retest $20,000 or come anywhere close. As money slowly trickles into the global risk asset markets, a strong base of support will form (…). And when the printer goes brrr, Bitcoin goes boom!
Cover image from Unsplash, Chart from Tradingview
