During early-October, the U.S. stock market, especially companies listed on the tech-centric Nasdaq, were in for a dramatic shock. In a brief, seemingly innocuous remark, U.S. Federal Reserve (Fed) chairman, Jerome Powell, claimed that the American central bank wasn’t close to discerning that a neutral rate of growth was needed.
As Powell’s quip echoed off the walls of the Internet’s echo chambers, Wall Street went into a semi-panic, as a number of tocks en-masse quickly moved off all-time highs to fresh multi-month lows. By December, markets looked dismal, as the S&P 500, Nasdaq, and other pertinent indexes across the globe had officially entered bear market territory. Even assets other than publicly-tradable shares were in the dumps, as the Homebuilders Index and commodities felt pain too. This further sell-off was likely catalyzed by Powell’s comment that the Fed’s balance sheet, which was pruning bond holdings rapidly, was on “autopilot.”
But since Christmas, which was preceded and followed by a number of what can only be described as chaotic trading sessions, incumbent president Donald Trump and Powell have been duking it out. Trump has overtly attacked the Fed for its seeming ease of hiking its target interest rate. But Powell and his economists/advisors maintained that their intent was to increase policy rates in 2019.
Yet, according to a recent report from CNBC, Powell has effectively gone back on his word, noting that the central financial body voted unanimously to put rate hikes on the backburner… for now. In a statement from the fiscal powerhouse, it was explained that “in light of global economic and financial developments and muted inflation pressures,” the Fed would be “patient” in determining what moves it would take with its targeted rate.
Long story short, Powell and his cronies have decided, (purportedly not in response to Trump’s bashing tweets), that policy rates won’t be increased due to an underlying positive shift in the macroeconomy.
When mainstream media outlets spread the word on this matter, the market jumped, posting gains that accentuated that investors are regaining confidence in this market. As of the end of Wednesday’s trading session, the S&P 500 is up 1.55%, while the Nasdaq Composite is up a more impressive 2.20%. Interestingly, gold also saw a nice bump, with the precious metal moving to $1,320/oz spot, compared to the $1,313 price seen on Tuesday.
What does this all mean for Bitcoin and the broader cryptocurrency ecosystem?
Apparently not much. That’s according to Alex Krüger anyway, who recently took to Twitter to joke that Bitcoin has no idea what the Fed is, nor the entity’s enamorment with interest rates and playing with the market like a string instrument.
Market reactions to the Fed: Gold: I'm lovin' it Bitcoin: what is the Fed? interest what? pic.twitter.com/MAlMTnCmqm — Alex Krüger (@Crypto_Macro) January 30, 2019
While the flagship cryptocurrency didn’t budge off this news, unlike its physical counterpart, many pundits in the crypto community believe that this sudden shift in the Fed’s strategy only underscores the importance of Bitcoin and similar decentralized innovations. Travis Kling, a crypto hedge fund manager based in Los Angeles, recently took to Twitter to comment on Powell’s “dovish” nature.
Using the term “capitulated” in a likely reference to crypto’s obsession over the word, Kling quipped that the Fed threw in the towel, obeying Trump’s tweets and market sentiment like a sheep being led to slaughter.
The Fed just capitulated to the market and Trump's tweets. The 2019 U.S. budget deficit is $1 trillion. If you were writing the script for a non-sovereign, hardcapped supply, digital form of money to gain mass adoption, this is how you would write it.https://t.co/3nT15fjnVY — Travis Kling (@Travis_Kling) January 31, 2019
With the 2019 U.S. budget deficit being purportedly over $1 trillion in mind, the Ikigai Fund head, who formerly worked at Steve Cohen’s Point72, noted that the value proposition for a non-sovereign, hardcapped supply, digital form of money — Bitcoin summarized in a sentence — just surged.
For those who didn’t get the memo, Powell’s new direction will likely catalyze the American government to impose the fourth round of quantitative easing (QE). Per previous reports from this outlet, Kling, now a skeptic of certain financial ecosystems, noted that globally-coordinated quantitative easing (QE) — “the largest monetary experiment [of all time]” where governments have effectively pushed markets drastically higher — birthed Bitcoin, an asset meant to disintermediate the whims of centralized parties and money.
Although this would suggest that Bitcoin could outperform on the back of the potentially upcoming bout of quantitative easing, where the Fed will drastically bolster its balance sheet, Kling made it clear that too much of a good thing could turn south. He wrote:
“Money printing is a drug. Risk assets have been on that drug for 10 years. They are addicted to that drug… This is unlikely to end well.”
And in closing, he expressed that with QE4 now being on the table, a bet on Bitcoin is a bet on opting out of “that experiment,” echoing comments he conveyed on TD Ameritrade.