Summary The Federal Reserve announced that it will hold interest rates steady after 10 consecutive rate increases but signaled two rate hikes could take hold this year to quell inflation. Interest rate hikes are generally bearish for Bitcoin, as well as Ethereum and other altcoins. Rate cuts are typically bullish for cryptos. What will be the impact of a hawkish rate pause? Seeking Alpha reached out to several analysts regarding their predictions. Below is Part 1 of our Crypto Roundtable. The Federal Reserve's decision to pause its interest rate hikes may not have come as a surprise to anyone, but its impact on the markets is less simple to predict. What will be the impact on investors in Bitcoin ( BTC-USD ) and other cryptos ? Seeking Alpha reached out to several analysts for their opinions within minutes of the announcement. What will be the impact of the Fed's June 14 rate hike decision on crypto prices? Kennan Mell: Historically, Bitcoin has outperformed during periods of risk-on trading, and these periods are often catalyzed by the Fed pausing or ending a rate hike cycle. This means that the Fed's decision to pause rate hikes should be good for Bitcoin. The Fed also signaled that it may continue hiking rates in the future. However, Bitcoin's scarcity fundamentally justifies its use as a store of value instead of a risk-on asset. Bitcoin's performance since inflation ticked up has been mediocre, but comparable to that of traditional store of value inflation hedges like gold and silver. If investors come to believe that inflation is entrenched and the Fed continues hiking, it could be good for all inflation hedges, including Bitcoin. In short, there's a bull case for Bitcoin, whether or not the Fed pause marks the end of this rate hike cycle. Logan Kane: Today's FOMC meeting shows a broad consensus towards hiking interest rates more, and holding rates high for longer than the market expects. Should the Fed neglect to follow through on this and fail to contain inflation, Bitcoin will serve as a hedge with an asymmetric upside. However, with cash rates expected to top out around 5.75%, I don't see much use for the other 10,000+ altcoins in existence. Mike Fay, BlockChain Reaction: With rates unchanged in a unanimous decision, the question now becomes is the Fed done, or is this just a brief pause while the central bank waits out more data? Markets are whipsawing in response to the news, and I suspect the real direction won't take shape until after Federal Reserve Chair Jerome Powell finishes answering questions. We'll get a better short-term direction indication for Bitcoin and the alts in the days ahead. What I think is worth watching is the correlation between BTC and equities. The asset classes have been negatively correlated for weeks. If the rate pause turns out to be a "buy the rumor, sell the news" event for stocks, we might see BTC and stocks re-correlate - just not in the way we might hope. David Huston: The Nasdaq ( QQQ ) and Bitcoin, as well as Ethereum (ETH-USD), are pretty closely correlated, as you can see from the graph that shows Bitcoin vs. the S&P 500 Futures ( SPX ) and the Nasdaq below. As I've written about previously, the trend is a big driver in crypto and currently Bitcoin is trading below its 23-day moving average, which is bearish. The Fed has instituted a "hawkish pause" - and they are focused on monitoring data but signaling to the market that further increases are in the cards. Both crypto and the Nasdaq are sensitive to movements in interest rates, and we should expect pressure in both markets because the time horizon for waiting for an official pause has been pushed out to later this year. Bitcoin versus the SPX and QQQ over a 3-year period shows a strong correlation. (David Huston - StockCharts) Clem Chambers: The market would love to hear the spigot of new money being turned back on. Liquidity is certainly a bullish driver of crypto prices. The Fed is not, however, going to give anyone premature hope. They understand that, if you tell someone something good has happened to them, then say you are joking, that person will hate you. Ironically, if you tell them something terrible has happened to them, then tell them you are joking, they simply laugh and think you are a jolly fellow. Meanwhile, the threat of the SEC to crypto makes anything the Fed does with interest rates seem like a gnat bite. Kevin George: The Fed has paused as expected after 10 rate hikes, but still held a hawkish tone and left the door open for further action. After being caught cold by the surge in inflation, central banks will not want to reverse their actions quickly and get caught in an embarrassing yo-yo scenario, so the obsession with big rate cuts is misguided. Crypto investors are hanging on the words of policymakers, but in reality, nothing has changed. At current rates, investors can get up to 5.65% on CDs, or high-interest savings accounts, fully insured up to $250,000 by the FDIC. Why would any large investor go to a DeFi project where they risk losing it all in a Terra-like (LUNC-USD) blow-up? The latest CPI print showed a drop to 4%, but even if rates are cut to 4%, or even 3%, the same story holds. There is also the big issue of regulation. The recent European MiCA regulations have shown a desire to trace small amounts of only $2,000+ in crypto transactions, making BTC's original architecture obsolete. Investors should also keep an eye on Binance with the recent drop in its BNB (BNB-USD) native token. A sharp drop lower could ignite the collateral issues seen at FTX (FTT-USD). The Terra and FTX issues have caused real harm to the potential for adoption, and given regulators an excuse to take control of the industry. John Miller: Federal Reserve tightening has driven pricing for interest-rate-sensitive names and weighed on the digital asset space since the hiking cycle began last March. On the surface, today's pause in raises to the federal funds rate likely captures headlines and more strongly plants the "policy pivot" notion into the crypto markets. But Fed participants' expectations for year-end rates continue to increase with each successive release of their Summary of Economic Projections. The median participant now targets a rate between 5.5% and 5.75%, up substantially from between 5.0% and 5.25% in the March release. And futures traders at the CME now place the highest probability on the federal funds rate rising by the December meeting, a strong swing from trading just yesterday. At its heart, this bearish outlook is still being driven by inflation expectations. The median Fed participant raised their year-end outlook for the important core PCE inflation indicator to between 3.9% and 4.0%. Sticky inflation means a hawkish Fed, and a continued headwind for cryptocurrencies as regulatory battles heat up into the fall. Stony Chambers Asset Research: The Fed chose to not raise, but signaled two more rate hikes going forward. It is maintaining a view that inflation is above target and requires more attention to keep a check on the market. It's important to note that central bankers must anticipate the markets' response and therefore craft their message in a way that creates a desired response. Markets, of course, know this as well, and might call the bluff. The result is clearly a game with unstable equilibria. It's best to monitor how the overall market responds over this next week to glean insights on what will happen to crypto. It is rather nuanced. For one, Bitcoin is starting to separate from the other coins, especially because it is becoming clearer that it is safe from the recent SEC drama. Crypto ex-BTC is rather oversold, and this pause in hikes is potentially bullish for those much more speculative altcoins. If the broader stock market continues to trend up/stay flat over the next week, I think we will largely see a flat/ slightly uptrending market for BTC going forward for a month or two, assuming no crazy things happen over that time. Altcoins will be much more volatile and have the potential for a much better upside. If the S&P 500 ( SPY ) and the Nasdaq ((QQQ)) start selling off in the next week, then altcoins will get destroyed. BTC will fall too, but it shouldn't be as much as altcoins. Currently, I am not buying any crypto except BTC. Part 2 of Seeking Alpha's Crypto Roundtable is coming next week!
