Analysts of the ASTL project, together with other experts, told what the tightening of the US monetary policy could lead to, and what could turn the downtrend towards growth.
The rates of digital assets, like the stock market, are sensitive to such decisions of regulators as a change in the key rate. Due to record inflation in the US, the US Federal Reserve (Fed) is expected to raise its key rate by 100 basis points (bp) at its regular meeting on September 21, which would be the largest increase since the early 1990s. The US Federal Reserve has repeatedly raised this figure this year. So, in March, for the first time since 2018, the Fed raised the rate by 25 basis points (bp) to 0.25-0.5% per annum. Then, on May 4, the rate was raised immediately by 50 bp. p. And in mid-June, the indicator was increased by 75 bp. for the first time since 1994: The Fed raised interest rates to 1.5-1.75% per annum, the largest increase in 28 years. On July 27, the Fed raised the rate again – to 2.25-2.5%.
According to financial analysts of the ASTL project, even taking into account a possible increase in September to 3.5%, the US regulator will not stop there. Even according to Bloomberg economists, the Fed will eventually be forced to increase the rate to 5%. Against the background of the general crisis in the global economy, a noticeable increase in the rate will affect – very negatively – primarily on the stock market, says Konstantinas Sizovas, CFO of the ASTL investment project. But the crypto market is also seriously connected by cash flows with the traditional financial system, so it will indirectly suffer from the policy of the Fed, our expert is sure. He suggested that in the event of a serious increase in the rate, new lows could be expected for all top tokens, up to a decrease in their rates by 30–40% from current levels. However, at the same time, Konstantinas Sizovas noted that closer to the end of the global financial cycle, the correlation between markets will decrease and the crypto market will begin to recover noticeably earlier, as it has happened more than once. But if we consider global trends in the markets, this will most likely happen no earlier than mid-2023.
In addition to “cooling” the economy by raising the base interest rate, the Fed and the US government can at any time resume the practice of stimulating markets with “helicopter money” (when central banks print money to financially support the population), the expert believes. According to him, in such a situation, high-risk assets, including cryptocurrencies, can receive a significant inflow of capital, which will be the starting impulse for a trend reversal and the beginning of a bull market lasting 1.5-2 years.
Bloomberg’s forecast looks more hawkish compared to what investment bankers and markets generally expect – a rate ceiling in the region of 4.5-4.75%, according to Chen Limin, chief financial officer and head of trading operations at crypto fund ICB Fund. He noted that a more aggressive tightening of monetary policy will provoke an even stronger peak in the stock and cryptocurrency markets than what can be assumed in the base scenario.
The second quarter for bitcoin turned out to be the worst in the last 11 years, and the subsequent recovery in July-August was based on the feeling that, against the backdrop of signs of a recession, the Fed would back off and start cutting rates in the spring of 2023, the expert said. But he explained that Fed Chairman Jerome Powell’s speech at Jackson Hole showed the fallacy of such ideas. The upcoming meeting on September 21 should definitively debunk this myth – along with a 75-100 bp increase in the key rate. The Fed will present an average forecast for 2023, which may indicate its increased level throughout the year, the specialist suggested. He also noted that Jerome Powell may assume that in November-December the Fed may not be limited to raising 25 bp. – the base scenario for the markets. “In this scenario, the markets for risky assets are waiting for a steep fall, which can be supported by the triggering of stop orders and margin calls,” the expert believes.
Only subsequent publications of macro statistics can change the situation, if the data is much worse than forecasts, which will also be supported by a softening of the rhetoric of the Fed representatives, Limin suggested. He clarified that given the speed of influence of regulators’ decisions on the economy, developments in this vein can be expected no earlier than November-December. Therefore, ahead of the stock and cryptocurrency markets, which continue to maintain a high correlation, will have to go through a new stage of “pain”, the expert admitted.
Bitcoin is close to testing the low since the beginning of the year ($17.6 thousand), and in the coming two days, bears can be expected to bring the price to this point, Limin said. According to him, only the Fed’s decision to increase by 50 bp, Powell’s balanced rhetoric and revision of the rate trajectory in line with market expectations can save the bulls. Otherwise, there will be a high probability of a breakdown of $17.6 thousand and the continuation of the medium-term negative dynamics, the expert concluded.
In such conditions of high market volatility and “tremor” of cryptocurrency rates, higher interest rates of the Fed and the ECB, high inflation and even higher inflationary expectations, the most reliable and stable way not only to keep your funds in cryptocurrency, but also to increase them is to invest in the ASTL project with stable ROI payments of up to 18% per annum on the initial investment, not dependent on crypto market fluctuations, and in a stable cryptocurrency – USDT.