Home News Crypto Surges as Fed Recognizes Disinflation-Can Crypto Survive a US Recession?

James Carter

02 Feb 2023

Crypto Surges as Fed Recognizes Disinflation-Can Crypto Survive a US Recession?

The prices of cryptocurrencies jumped up on Wednesday after Fed Chairman Jerome Powell said things that were more dovish than expected at the usual press conference after the Fed’s policy announcement. Risky assets, like stocks, went up after Powell said that the “disinflation process has begun” and said that the central bank had made progress in its fight against inflation.

Powell’s statement came soon after the Federal Reserve raised the goal range for the federal funds rate by 25 basis points to 4.50–4.75%. The vast majority of people were ready for this turn of events. Bitcoin’s price was last seen trading somewhere about $23,700, representing a gain of approximately 2.7% for the day as well as an increase of roughly 4% from its prior lows after the Fed, which were in the $22,700s.

Even more astounding is the fact that Ethereum has gained more than 3.5 percent since the beginning of the day and is currently trading in the $1,640 range. A short-term pennant pattern is getting ready to be broken by bitcoin, which is now the world’s second-largest cryptocurrency when measured by market capitalization. This would make it possible for a rapid run-up to the area of about $1,800, which has resistance. On the other hand, important cryptocurrencies such as Cardano, Solano, Polygon, and Polkadot have all seen price increases of between 4% and 8% compared to where they were before the Fed revealed its stance.

Powell Turns Down the Chance to Make Markets Fall

Powell had the opportunity to halt the recent easing of financial conditions. He chose not to (i.e., the January move higher in stocks and cryptocurrency and lower in the US dollar and yields). However, he did mention that the Fed was more concerned about long-term economic trends than it was about short-term swings in the market.

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Before today’s Fed meeting, many strategists warned that Powell might say more difficult things to calm “animal spirits” on the market. This is because the Fed wants financial conditions to stay relatively easy, which would make it harder for them to bring inflation back to the 2% target.

As it turned out, there were no harsh words meant to shake up the market. This is why assets like crypto went up. But in its statement, the Fed said that it was still necessary to keep raising rates and that it was likely required to raise rates “a couple” more times. That might go against what the market expects, which is that there will only be one more 25-bps rate hike (in March) before the cycle of rate hikes is over.

In either case, it looks like crypto now has the go-ahead to rise in the short term. So, short positions are still at risk, even though they have been wiped out over the last few hours due to Wednesday’s crypto market rally after the Fed meeting. Data from Coinglass.com shows that short-position liquidations have gone up since the Fed meeting. This suggests that a short squeeze could keep the market going up.

But if the US is going to go into recession, can crypto rise?

Wednesday is a happy day for crypto investors. But the rally after the Fed could fall apart quickly. Over the next two days, big tech companies like Meta Platforms, Amazon, Apple, and Alphabet will all report their earnings. And the Q4 earnings that S&P 500 companies have reported so far all point to the same thing: a drop in profits.

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That’s because the US economy is slowing down quickly, which is primarily due to the delayed effects of the Fed’s aggressive hike cycle in 2022. Most macroeconomic analysts agree that the US economy will be in recession within the next few quarters.