The crypto markets react poorly to Powell, but then they recover

Yesterday, the Fed Chairman Jerome Powell gave a speech on the US economy at the Economic Club of Chicago. While he was speaking, his words were interpreted negatively by the markets, including the crypto ones.

The speech lasted three quarters of an hour, and although it had left the crypto markets in slight difficulty, a few hours later they recovered.

Powell’s speech and the impact on the crypto market

To tell the truth, what the Fed Chairman said yesterday was not particularly significant, because overall, more or less, it was all already known.

The fact is that the markets were probably just waiting for some sort of “excuse” to go down a bit.

Powell began by saying that the U.S. economy is still decidedly solid, with a labor market close to maximum employment and inflation decreasing, although still above the 2% target.

However, it also listed a series of issues that make the future scenario less optimistic.

First of all, he emphasized that growth is slowing down this year. Subsequently, he obviously addressed the issue of the negative impact of tariffs on inflation.

In particular, he stated not only that the tariffs will generate a temporary increase in prices, but above all that this increase could be persistent. This is one of the points that has most worried the markets.

Regarding the labor market, he said both that the change in US immigration policy has led to stagnant growth in the workforce, and that the impact of recent government layoffs on the labor market is still difficult to estimate.

Regarding the financial markets, Powell hinted, between the lines, that the Fed is currently not inclined to intervene to limit the losses.

But the point that has most frightened the markets is the one concerning the debito pubblico.

The Fed chairman said that the federal debt is on an unsustainable path, even if it has not yet reached an unsustainable level, and emphasized the need to address the problem.

The USA are objectively vulnerable from the point of view of public debt, and there is a risk that they may become even more so if the potential buyers of the USA debt become uncertain or skeptical about it.

The reaction of the risk-on markets

Yesterday, to tell the truth, the USA stock markets had already opened lower well before Powell began to speak.

However, during his speech they significantly accelerated the decline.

For example, the S&P500 index, which had opened at around 5,340 points, had already fallen to 5,320 before his speech. However, while Powell was speaking, it fell further, reaching the day’s lowest point at 5,220.

Therefore, the negative impact of Powell’s words was there, but it did nothing but increase a decline already underway.

On the other hand, everything he said was already substantially known, and he didn’t even venture too much into forecasts for the future.

Perhaps the markets in the past days and weeks had somewhat deluded themselves that the Fed could intervene to help them, while what Powell said yesterday made it quite clear that currently the central bank is not inclined to do so.

Moreover, while Powell was speaking, the S&P500 had only dropped to 5,260 points, while the rest of the decline occurred after the end of his speech.

Subsequently, there was a very small rebound up to 5,270 points, before the close, but during the night the Asian markets then opened sharply higher.

The reaction of the crypto markets to Powell’s words

As for the crypto market, it’s advisable to start with Bitcoin.

Before Powell’s speech, the price of BTC was even on the rise, as it had gone from $83,500 to $85,000 while the US stock markets had already opened lower.

However, after the Fed Chairman started speaking, even the price trend of Bitcoin began to follow a similar trajectory to the S&P500.

However, the decline not only stopped with the end of his speech, but did not bring the price of BTC below $83,000, which is a level that had already been reached during the previous night.

At that point it is not surprising at all that within a few minutes it returned to $84,000, canceling all the losses generated in that way, and during the night it resumed the climb it had started before Powell’s speech, although much more slowly.

We must not forget that the Dollar Index is still at a very low level, and this in theory should favor Bitcoin.

Regarding the Total3, which measures the overall capitalization of all altcoins, excluding Ethereum and stablecoin, the situation turned out to be even better, because the overnight rebound brought it to a level even higher than yesterday’s daily peak.

Therefore, the reaction of the crypto markets yesterday was probably not generated by Powell’s words, but by the reaction of the US stock exchanges to Powell’s words. Once this dynamic dissipated, the crypto resumed their previous path.