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Potential Fed Hike and Big 5 Tech Earnings Turn Crypto Market Volatile

25 July 2022

Crypto investors are showing signs of uncertainty despite recent gains for Bitcoin and Ethereum ahead of Wednesday’s Federal Open Market Committee meeting.

Both had early drops Monday.

The biggest five tech companies also have earnings reports coming up. It’s going to be interesting times, watching how all of this impacts prices.

“The Fed is widely expected to implement another 75 basis points interest rate hike in a bid to curb U.S. inflation, which last month hit a 40-year high of 9.1%. A rate hike could incentivize some crypto investors to sell off their holdings and take profits as high interest environments tend to negatively impact risk-on assets.

“The U.S. gross domestic product for the second quarter of the year is also due to print this Thursday, which could spark further fears around the possibility of a U.S. recession. The economy shrank by 1.6% in the first quarter, and it’s expected that this week’s reading will show a growth of 0.5% in the second quarter. However, if the growth is slower than expected or another retraction is printed, it could be viewed as another sign that the U.S. has entered a recession.

“Additionally, earnings reports from Apple, Microsoft, Alphabet, Amazon, and Meta could give an indication of the health of the U.S. economy, potentially leading to volatility in global and crypto markets.”

This all comes on the heels of a solid week for Bitcoin where many asked if the bull rally is sustainable, and whether Ethereum’s gain on the Merge was bringing optimism back to crypto markets.

Investors are betting the Fed raises interest rates a full percentage point, a historic increase not seen since the 1980s.

“For weeks now, the Federal Reserve has been foreshadowing the upcoming debate at the Federal Open Market Committee (FOMC)’s July meeting: Raise rates by half a point or follow up with last month’s surprise decision with another three-quarter point increase, both large moves by historic standards.

“That was until consumer prices in June rose 9.1 percent from a year ago, a fresh 40-year high. It led investors to start placing their bets that the Fed could again be bold — hiking interest rates by a whopping full percentage point, which would mark a first for the Fed since the 1980s with Chair Paul Volcker.”

Further throwing chaos into the mix, we are now in what has historically and consistently been called a recession — two consecutive quarters of negative economic growth — which now the White House spin-masters want to call into question for nakedly partisan reasons.

Treasury Sec. (and former Fed Chair) Janet Yellen and the Biden Administration are pulling a Big Lebowski, saying essentially, “Well you know, that’s just like, your opinion, man.”

​​Nobody knows for sure what the Fed will do this week, with soaring inflation, a confirmed recession, and a rising rate environment as signs point to stagflation.

“Professional investors are growing increasingly gloomy about the future, with the majority now predicting that stocks will fall into a bear market this year and the U.S. economy will be plagued by stagflation — meaning high inflation and slow economic growth — according to Bank of America’s latest Global Fund Manager Survey.”

Crypto has long been seen by many observers as a hedge against inflation because of its limited supply and decentralization.

Now we may get to see over the longer haul how well it serves against stagflation.