Fed, Jerome Powell: words are good for crypto

For some time now, we had gotten used to the fact that when Fed Chairman Jerome Powell spoke, crypto went down. 

Yesterday, however, was different.

The Fed’s decision.

First, the Fed announced another 25 basis point rate hike. 

This was actually a widely expected decision and had already been largely discounted by the markets, so there was no significant movement after the announcement. 

But the official press release issued after the announcement made it quite clear that there would be no negative news. 

In fact, there is nothing in that release that would reasonably suggest that things could be worse than expected. 

Markets reason not on the basis of what has happened, but on the basis of what will happen, that is, what they reasonably expect might happen. What frightens them is not any negative news, but any unexpected negative news. 

Because if the markets anticipate problems in the future, they discount them as soon as they become aware of them, and if this is done in advance, there is no significant impact on the financial markets when the anticipated problems actually occur. 

So given that everything the Fed said yesterday was largely expected, the markets did not react badly, even though some of it was bad news, because they had already largely discounted that bad news.

Fed: Jerome Powell’s Words and the Positive Impact on Crypto

Often it is not the announcement of interest rate changes or the official press release of the Fed that moves the markets, but the words spoken later in a press conference by its chairman. 

In yesterday’s press conference, Fed Chairman Jerome Powell actually said nothing new, so this time the markets did not react badly to his words. 

In fact, about two hours after the conference ended, the price of bitcoin began to rise. 

Perhaps the very fact that Powell revealed virtually nothing new and unexpected allowed the crypto markets to react well. 

Among other things, the Nasdaq instead lost 1.4 percent since the start of the press conference, closing the day at -0.4 percent.

The S&P500 index also lost 1.3 percent from the start of Powell’s speech, so the positive reaction of the crypto markets was in contrast to the traditional markets.

Crypto Markets Reaction to Fed Chairman Jerome Powell’s Words

It is probably no coincidence that the small rebound in the crypto markets occurred after the US stock exchanges closed. 

In other words, while Powell was speaking, the U.S. exchanges went down, which negatively affected the crypto markets as well. 

But after the U.S. exchanges closed, the crypto markets were no longer affected by their negative trend and were able to react well to the rather predictable words spoken by the Fed Chairman at the press conference. 

Note that Bitcoin’s dominance yesterday started to decline slightly just before the rate hike number was announced and continued its descent until almost the end of Powell’s press conference. 

As soon as Powell finished speaking, it rebounded and eventually returned to its pre-decision level over the next few hours. 

This is a dominance level very close to the 2023 highs and above the 2022 highs. To find similar levels in the past, one has to go back to July 2021, the peak of the speculative bubble. 

On the other hand, gold also rallied yesterday, making a new high for the year 2023 at $2,081 an ounce and then settling just below $2,040. This is very close to all-time highs.

Reasons for the rise

Powell’s words last night did not shock the markets because they were widely expected. 

However, the scenario he described is far from good, even though he said it is under control. 

Therefore, it is not at all surprising that the U.S. stock markets reacted with a slight but significant drop or that gold appreciated. 

In cases like this, when the markets are anticipating a long critical period during which no new bull run is likely to be triggered, many investors prefer to shift some of their capital from risk-on assets such as stocks to risk-off assets such as gold in anticipation of better times ahead. 

In such a scenario, Bitcoin‘s nearly 3% increase in market value suggests that some investors are currently viewing it as a sort of “middle ground” alternative to gold. 

Bitcoin is indeed a risk-on asset, unlike gold, but at the same time it is designed to counter the expansive monetary policies of central banks. 

Given that the U.S. economy has some rough spots at the moment, it is possible to imagine that the Fed will start printing money again in the future. 

Also, given the crisis in the banking sector, keeping some of one’s savings in BTC on a non-custodial wallet could be an alternative to simply holding dollars in a bank. 

Add to this the fact that 2019 saw the second major increase in the price of bitcoin at the beginning of March, and the picture perfectly justifies yesterday’s rise.