BlackRock Issues Stark Fed Warning After Huge Bitcoin And Ethereum Boom
Bitcoin
BTC
The bitcoin price, following a brutal 2022 crash, has added around 70% since early January as traders increasingly bet the Federal Reserve is close to declaring victory in its war on inflation or risk triggering hyperinflation.
Now, analysts at the world’s largest asset manager BlackRock
BLK
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The bitcoin price has surged through the first few months of 2023 as expectations the Federal … [+]
“We think the Fed could only deliver the rate cuts priced in by markets if a more serious credit crunch took hold and caused an even deeper recession than we expect,” the BlackRock strategists wrote in a note seen by Bloomberg.
The banking crisis that engulfed Silicon Valley Bank, Signature Bank and Silvergate before spreading to Europe is thought to have been partly caused by the Fed’s rapid series of interest rate hikes, adding to expectations the Fed would be forced to lower rates in coming months. However, the banks have stabilized this week, fueling hope the problems are contained.
“That damage is now front and center—central banks are finally forced to confront it,” BlackRock analysts wrote. “We think this means they are set to enter the new phase of curbing inflation that we’ve been flagging. We see major central banks moving away from a ‘whatever it takes’ approach, stopping their hikes and entering a more nuanced phase that’s less about a relentless fight against inflation but still one where they can’t cut rates.”
The bitcoin, ethereum and wider crypto price boom so far this year has been powered by “continued confidence in an imminent Federal Reserve rate cut,” Alex Kuptsikevich, FxPro senior market analyst, wrote in a note.
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Bitcoin’s rebound this year has erased some of the damage done by 2022’s huge bitcoin price crash.
Earlier this month, Fed chair Jerome Powell told Congress there is still a “long way to go” in reducing inflation that spiked to a 40-year high in 2022. Spending, hiring and consumer confidence have all held up better than some expected them to despite the Fed’s hawkish stance.
“With consumer resilience again shining through, there are growing expectations that the Federal Reserve may hike interest rates again at the next meeting, but it’s still believed to be close to the summit of peak rates, particularly as banking lending is expected to tighten, causing a drag on the economy,” Susannah Streeter, head of money and markets at broker Hargreaves Lansdown, wrote in an emailed note.
