BitcoinBTC and other major cryptocurrencies—including ethereum and XRPXRP—are currently braced for a “nightmare” Federal Reserve price scenario.
The bitcoin price—after rallying through the first half of the year—has lost momentum, crashing back and weighing on ethereum, XRP and the wider crypto market (even as a surprise Elon Musk “flip” could be about to blow it up).
Now, Jamie Dimon, the chief executive of Wall Street giant JPMorgan, has warned people should prepare for a “worst-case” Fed scenario—that some think could spur sudden bitcoin price growth.
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“I am not sure if the world is prepared for 7% [interest rates],” Dimon told the Times of India after Fed chair Jerome Powell last week warned he was prepared to keep raising rates if necessary to stamp out inflation.
“I ask people in business, ‘Are you prepared for something like 7%?’ The worst case is 7% with stagflation. If they are going to have lower volumes and higher rates, there will be stress in the system,” Dimon said. “We urge our clients to be prepared for that kind of stress.”
The Fed’s rapid series of interest rate hikes, from near zero in the Covid-19 pandemic to just over 5%, partly triggered a banking crisis earlier this year and has ten-year U.S. Treasury yields, the benchmark of global borrowing costs, above 4.6% for the first time since 2007—up from 4% at the start of September.
Soaring bond yields have weighed on stock markets in recent weeks, wiping out the recent gains made by the Dow, S&P 500 and Nasdaq indices.
“Cryptocurrencies need banking problems or uncertainty about the solvency of governments to generate sustainable growth momentum,” FxPro markets analyst Alex Kuptsikevich wrote in an emailed note titled: Crypto needs financial chaos for growth. “Recent moves in bond markets show that something like this is brewing,” Kuptsikevich added.
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Other market watchers have warned further interest rate rises could begin bursting asset bubbles.
“The world is certainly not prepared for a 7% Federal Reserve funds rate,” Charlie Jamieson, chief investment officer at Jamieson Coote Bonds, told Bloomberg. “At that level we would expect that we would have a deflationary asset unwind, it would burst a lot of asset bubbles, it just simply wouldn’t be sustainable.”
However, former BitMex chief executive and legendary crypto trader Arthur Hayes has predicted the bitcoin price could pump if the Fed keeps raising rates.
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