Global cryptocurrency market capitalization is down nearly 70% this year, largely due to the Federal Reserve’s commitment to raising interest rates. Nonetheless, investment Stanley Druckenmiller sees a silver lining for this space.
Stanley Druckenmiller calls for a rebound
Despite the fall in cryptocurrencies due to the collapse of the global economy, Stanley Druckenmiller believes that the nascent asset class could see a revival as the macroeconomic situation worsens.
Speaking in the program CNBC’s Delivering Alpha Conferencethe American investor discussed the current macroeconomic landscape and added comments on how digital assets such as Bitcoin and Ethereum could be affected.
Stanley Druckenmiller said he thinks the US economy could suffer from a “hard landing” in the medium term, adding that it would be “amazed if we didn’t… [une] recession in 2023“.
Stanley Druckenmiller chose not to mince words when discussing the grim macroeconomic picture. He said the United States was “in great difficulty” and issued an ominous warning that “something really bad” could occur due to the deterioration of the state of the economy.
While Stanley Druckenmiller’s comment may be enough to scare investors around the world, given his track record of market cycles, he hinted that there could be a silver lining for crypto enthusiasts. Stanley Druckenmiller put forward the idea of a “Renaissance” of crypto if people start to lose faith in central banks.
Cryptocurrencies reaction to economic turmoil
The world’s most powerful central bank, the Federal Reserve, has had a grip on global markets this year as inflation has soared, and crypto assets like bitcoin have not been spared. The value of the cryptocurrency space is around 68% from its November 2021 peak, driven mainly by market exhaustion and the Fed’s commitment to raising interest rates.
The Fed announced a third straight rate hike of 75 basis points on Sept. 21, which sent Bitcoin, Ethereum and stocks sliding. Fed Chairman Jerome Powell has repeatedly indicated that the US central bank is aiming for a 2% inflation rate, but inflation has shown no significant slowdown; the latest printout of the consumer price index came in higher than expected at 8.3%. This suggests that further rate hikes from the Fed could be on the horizon.
While bitcoin is down more than 70% from its high of $69,000, it has also seen some stabilization amid the current economic uncertainty. When inflation eased last month, the crypto major rallied on market hopes of a possible end to what is being called “crypto winter“. The cryptocurrency market also reacted positively to the Fed’s rate hike in July, as the 75 basis point increase was lower than some economists expected.
Still, the Fed’s hawkish stance has had a huge impact on crypto this year, and the market’s slide continues. Stanley Druckenmiller’s argument is that the asset class may rebound, not because the Fed has gone from hawkish to dovist…–but because people might lose all faith in central banks like the Fed.
Bitcoin has long been touted as a hedge against inflation due to its scarcity (there will never be more than 21 million coins), and big players like MicroStrategy and Paul Tudor Jones have helped evangelize that thesis. More recently, however, its ability to serve as an inflation bet has come into question. If Stanley Druckenmiller is right, crypto might finally have its heyday. But first it will need the market to help it trade independently of the Fed.
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Cryptocurrencies Could Experience a ‘Renaissance’ as Trust in Banks Diminishes
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