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The price of bitcoin has fallen to levels not seen since the crypto pandemic rally began in late 2020 after a perfect storm of interest rate hikes from the Federal Reserve, shrinking its huge $9 trillion balance sheet and a massive $18 billion stablecoin crash (with the cryptocurrency luna crash staging a shock bounce this weekend).
Now, a well-respected analyst has warned that the Federal Reserve, endorsed by US President Joe Biden, will continue a “shock therapy” program to depress demand and “kill” inflation – along with the crypto crash” an unexpected bonus”. “
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“Volatility is like napalm for risky assets,” Zoltan Pozsar, global head of short-term interest rate strategy at Credit Suisse, wrote in a note that was widely shared on social media this week. .
“At least consider the possibility that the extreme volatility and illiquidity you see in the markets is intentional, and that the Fed is not deterred by it, but rather emboldened by it in its singular pursuit of price stability. If an asset price correction is a desired outcome of the bulls, and a sharp slowdown in growth is needed to rein in inflation, the more the curve inverts on the Fed, the further it will push it back.”
Earlier this month, the Fed raised interest rates by half a percentage point, the biggest rate hike in 22 years. Since then, Fed Chairman Jerome Powell, who was confirmed this week for a second four-year term, has signaled that more rate hikes of a similar size are on the way as he also begins to cut his $9 trillion balance sheet that ballooned during the pandemic. time.
“I agree with what Powell said last week that the number one threat [to] the strength we’re building is inflation,” President Biden said this week in comments interpreted by Pozsar to mean that Biden “announced the end of the Fed’s put option and endorsed the Fed’s call. Fed to curb inflation”.
“The message is pretty clear,” Pozsar wrote. “Quantitative easing has overstayed its welcome; we need a series of negative wealth effects; we need ‘shock therapy’”.
Data this week showed that consumer prices in the United States rose at an annual rate of 8.3% in April, beating expectations and remaining stubbornly at a four-decade high.
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In addition to a brutal crypto crash that wiped out bitcoin and ethereum gains over the past year, the S&P 500 is currently down more than 16% since the start of 2022 and the very technology, is down 25%. The Dow lost 12%.
“The Fed is now writing a call option on risky assets — not just stocks, but also housing and crypto,” Pozsar wrote.
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Biden ‘Approved’ Of The Fed’s ‘Shock Therapy’ – Why The $1 Trillion Bitcoin, Ethereum And Crypto Price Crash May Only Be Beginning
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