bitfinex alpha 44 | Higher Rate Hike Coming Amidst Increased Crypto Volatility – Bitfinex Blog
06 Mar Bitfinex Alpha 44 | More rate hikes coming amid increased crypto volatility
In the dream scenario, a “soft landing” with moderate inflation and a resilient and growing economy would be ideal. However, the prospect of a higher US interest rate hike is weighing on markets, following more evidence of a rebound in inflation and stronger consumer spending in February. The S&P 500 lost half of its January gains last month as investors reevaluated their expectations. The bond market has also changed its outlook on rate hikes, after initially being optimistic in January that the Fed would pause soon.
Even if the Fed could manage a soft landing, the apparent stability of inflation suggests that the US economy is in for a rough ride in 2023. While we expect more rate hikes, the Fed’s tighter monetary policy since last year is starting to have an effect on the economy. Short term rates are now much higher than longer term rates which is evident in the deep inversion of the yield curve. This affects businesses as it drives up the cost of borrowing, and the latest ISM report evidenced the impact of higher credit costs in the contraction seen in the manufacturing sector in the latest ISM report.
As both businesses and consumers are shrinking, consumers are also losing confidence in the economy. Consumer confidence remains below the threshold indicating a healthy economy and indicating a prolonged economic slowdown. The longer and longer the Fed allows higher interest rates to remain in place, the more pain we expect to inflict on the economy.
In crypto markets, we are expecting increased volatility in the short term. After a sharp drop in the prices of both bitcoin and ether late last week, the total crypto market cap psychologically fell below the $1 trillion mark. Market dynamics in the futures market still remain subdued with more significant liquidations – more than $210m in just one day – now happening on the spot of minutes. Volatility looks to be here to stay.
Against this market backdrop, the US Securities and Exchange Commission (SEC) has had a busy first quarter. Robinhood reveals it has received an investigative subpoena from the SEC over its crypto listing, custody and platform operations; While Silvergate, a major crypto bank, delayed its annual filing to the SEC as it evaluates its ability to remain operational after suffering significant losses.
TrueUSD (TUSD) becomes the fifth largest stablecoin as Binance creates 130 million TUSD in a week. Meanwhile, Ethereum developers are gearing up for a final test for their Shanghai upgrade, which will allow the release of locked-up ETH. It’s never seamless in crypto.
Happy Trading!
