Bitcoin will Reach $70,000 Soon if the Federal Reserve Cuts Rates

Arthur Hayes, BitMEX’s ex-CEO, recently Suggested that a rate cut by the Federal Reserve could propel Bitcoin to the $70,000 mark, simultaneously rejuvenating the US banking sector. This assertion adds another layer to the ongoing debate among investors about the impending direction of the financial markets. 

Historical trends underscore the symbiotic relationship between the Federal Reserve’s monetary decisions and Bitcoin’s trajectory. Notably, during the pandemic’s fiscal response, Bitcoin’s ascent outpaced the Fed’s balance sheet expansion by an impressive 129%. Such data points underscore the market’s keen response to the Fed’s moves, particularly under Chairperson Powell’s tenure.

Yet, the plot thickened post-March 2022. Bucking the popular sentiment that anticipated a pause in rate hikes, the Federal Reserve surprised markets by implementing three additional hikes. This development spurred a reevaluation among market participants and analysts alike.

A salient query emerged during the Korea Blockchain Week conference: Can Bitcoin’s valuation sustain its upward momentum if central banks, including the Federal Reserve, persist with their hawkish stance? This question gains prominence against a backdrop where the US skirts a recession, inflationary pressures persist, and financial stability remains intact. If these variables hold, it’s conceivable that central banks might maintain their current trajectory.

Drawing from historical parallels, post-WW2 Asian economies, which thrived on exports, leveraged financial repression—a scenario where nominal GDP growth eclipses bond yields. This strategy facilitated affordable capital access for industrial entities, fostering rapid modernization and ensuring job stability.

In this discourse, the ‘Real Yield’—derived by offsetting the Government Bond Yield with Nominal GDP Growth—emerges as pivotal. An analysis using the 2-year US Treasury yield as a proxy indicates that real rates, despite aggressive rate hikes by the Fed, barely remain in the positive territory. A shift to longer tenors, like the 10-year or 30-year yields, reveals persistently negative real rates, dampening the allure of long-term bonds.

Reflecting on the fiscal windfall during the 2020-2021 bull run, the affluent segment significantly bolstered tax coffers. However, 2022 ushered in a paradigm shift with the Fed’s rate hike decision, exerting downward pressure on financial markets. An illustrative chart, benchmarked at 100, delineates the performance trajectory of key indices, including the S&P 500 and Nasdaq 100. This pivot resulted in dwindling capital gains tax revenues, with 2021 data from the US Congressional Budget Office indicating that realized capital gains constituted nearly 9% of the GDP.

Current trends intimate a surge in government expenditure, especially in sectors catering to demographic shifts and a multipolar global order. With escalating expenses and tapering revenues, fiscal deficits are poised to widen. Projections suggest that by the close of the year, the US Treasury will be compelled to introduce bonds worth an additional $1.85 trillion to address legacy debt and the fiscal deficit. As of the second quarter’s culmination, the annualized interest outlay by the US Treasury hovers around $1 trillion.

Decoding this dynamic reveals a cyclical pattern: The Federal Reserve’s inflation-containment strategy, manifested through rate hikes, necessitates augmented bond issuance by the US Treasury at steeper rates. This dynamic inadvertently amplifies nominal GDP growth, driven by affluent segments channeling their interest earnings into service consumption.

Contrary to the prevailing narrative that associates rate hikes with adverse implications for volatile assets like Bitcoin, the cryptocurrency has registered a commendable 29% appreciation since March 10. This resilience suggests that sustained rate hikes by the Fed could plunge real rates further into negative territory.

Market dynamics indicate a pronounced focus on the Federal Reserve’s nominal rate, overshadowing the real rate juxtaposed against the US’s robust nominal GDP growth. This skewed perception might elucidate Bitcoin’s inability to breach the anticipated $70,000 threshold. As the inefficacy of bonds, even with nominal rates at 5.5%, becomes palpable, investors might recalibrate their portfolios in favor of tangible assets like Bitcoin and AI-centric equities.

In summation, while prevailing sentiment leans towards a potential rate cut and a revival of quantitative easing, the robustness of digital currencies, epitomized by Bitcoin, in navigating rate hikes is evident. This evolving dynamic between Bitcoin and Federal Reserve policies, especially in a high debt-to-GDP milieu, suggests a potential recalibration of conventional economic paradigms.

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Breaking: Key US House Committee Leaders Challenges Federal Reserve on Stablecoin

The House Financial Services Committee’s top brass, including Chairman Patrick McHenry (NC-10), Vice Chairman French Hill (AR-02), and Chairman of the Oversight and Investigations Subcommittee, Bill Huizenga (MI-04), have formally expressed their concerns to the Federal Reserve Board (Fed) regarding its recent regulatory moves on payment stablecoins.

In a letter addressed to Fed Chairman Jerome Powell, the trio voiced their objections to the Fed’s recent supervision and regulation letters, specifically “Creation of Novel Activities Supervision Program” (SR 23-7) and “Supervisory Nonobjection Process for State Member Banks Seeking to Engage in Certain Activities Involving Dollar Tokens” (SR 23-8), both issued on August 8, 2023. The committee members believe these actions could potentially undermine the progress Congress has made in establishing a regulatory framework for payment stablecoins.

The letter highlights Congress’s understanding of the need for regulatory clarity in the digital asset ecosystem, emphasizing the “Clarity for Payment Stablecoins Act” as a bipartisan effort to provide such clarity. However, the Fed’s issuance of SR 23-7 and SR 23-8, shortly after the Committee’s endorsement of the aforementioned act, has raised eyebrows.

The committee members argue that the Fed’s actions, particularly through SR 23-7 and SR 23-8, seem to deter banks from issuing payment stablecoins or even participating in the stablecoin ecosystem. They further assert that the “Novel Activities Supervision Program” under SR 23-7 appears to impose additional regulatory burdens on banking institutions engaging with crypto-assets. This, combined with previous policy statements and decisions by the Fed, could lead to an implicit prohibition on banks’ involvement in the digital asset ecosystem.

Furthermore, the committee members pointed out that the Fed did not follow the notice and comment process as mandated by the Administrative Procedure Act when issuing SR 23-7 and SR 23-8. They view this as an attempt by the Fed to set policy without being accountable to market participants and the public.

Chairman of the House Financial Services Committee, Patrick McHenry has been aggressively working to protect laws governing digital assets because he believes that organisations like the Federal Reserve, the Treasury, and the IRS are undermining these laws. He criticised the Notice of Proposed Rulemaking on the requirements for reporting digital assets that was released by the Internal Revenue Service (IRS) and the U.S. Department of the Treasury on August 26, 2023 as a result of the Infrastructure Investment and Jobs Act. He referred to this as yet another effort by the Biden government to damage the American digital asset ecosystem and encouraged the government to work together with Congress to provide clear laws for the sector.

Widespread criticism has been levelled at the Treasury and IRS’s proposed rules, which would require brokers to disclose sales and swaps of digital assets made by their clients. The Tax Law Centre at NYU Law has also voiced its worries and warned of possible financial repercussions over the delay in adopting these measures.

In conclusion, as the ecosystem for digital assets develops, the struggle between Congress and regulatory agencies highlights the need for a well-defined strategy that protects both consumers and market players while ensuring the industry’s expansion.

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Arthur Hayes: The Federal Reserve is Doomed to Fail

In the realm of financial analysis, few voices resonate as loudly as Arthur Hayes. His recent article, titled “Kite or Board,” has generated substantial buzz in financial circles. Hayes meticulously evaluates the U.S. Federal Reserve, forecasting significant challenges that could jeopardize its future operations. Simultaneously, he highlights Bitcoin’s rising prominence as an alternative in the financial domain.

The Federal Reserve’s Autonomy

Hayes sheds light on the Federal Reserve’s unique position, emphasizing its ability to make decisions that might not always require direct public validation. This degree of autonomy grants the Fed considerable power. However, as Hayes points out, such unchecked authority might sometimes lead to decisions that don’t align with the broader public interest.

Understanding Inflation Tax

The concept of the “inflation tax” is meticulously dissected by Hayes. Inflation, often an abstract concept for many, serves as a silent tax eroding public wealth. Hayes suggests that the majority, especially those unfamiliar with high inflation periods, might overlook this. Such an oversight can make inflationary strategies particularly appealing for policymakers.

Potential Policy Changes

Hayes delves into potential policy shifts that could address inflation. Specifically, he discusses the idea of eliminating interest on reserves and mandating a substantial proportion of deposits to be held as reserves. Such a policy, Hayes postulates, could significantly curb inflationary pressures. The math behind this assertion, as Hayes suggests, is detailed in his article, offering readers an in-depth understanding of the mechanics.

Banks in Transition

With policy shifts, the banking sector’s response becomes pivotal. The banks, guardians of traditional finance, could find themselves at a crossroads. Hayes touches upon this, hinting at the protective measures banks might adopt in light of policies that could potentially impact their profitability.

Bitcoin’s Ascendancy

The crux of Hayes’ argument revolves around Bitcoin’s potential role in this financial tableau. As traditional structures like the Federal Reserve grapple with challenges, Bitcoin, with its decentralized nature, finite supply, and global acceptance, emerges as a promising alternative. Hayes suggests that Bitcoin, free from the shackles of centralized decision-making and inflationary tendencies, could offer a transparent and viable financial system alternative.

The Impending Shift

Central to Hayes’ analysis is his forthright assertion: “I want to show readers how the Fed is doomed to fail, and how the more they try to right the ship using Volkernomics.” This sentiment underscores a significant shift in the global financial paradigm. As the Federal Reserve grapples with its challenges, Hayes believes its potential missteps could pave the way for alternative financial instruments like Bitcoin. The cryptocurrency, in Hayes’ view, is poised to redefine how transactions are conducted and how value is stored, potentially filling the void left by the Fed’s challenges.

Arthur Hayes’ insights present a comprehensive view of the challenges facing the Federal Reserve and the burgeoning role Bitcoin could play in the future. His analysis, rooted in observation and critical evaluation, offers a perspective that resonates with both crypto enthusiasts and traditional finance observers.

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Federal Reserve Governor Michelle W. Bowman Stresses Banking Supervision including Digital Assets

Governor Michelle W. Bowman, a member of the Board of Governors of the Federal Reserve System, emphasized the need for a responsive and responsible regulatory framework in the banking sector. Speaking at an event in Salzburg, she discussed the importance of adapting to changing economic conditions and emerging risks while ensuring transparency and open debate in regulatory adjustments.

Governor Bowman highlighted recent stress in the banking system and the failures of certain banks, underscoring the deficiencies in risk management practices and supervisory priorities. To address these issues, she proposed an independent third-party review to thoroughly analyze the factors contributing to recent bank failures and stress in the banking system. The goal is to provide a comprehensive understanding of the events and improve the impartiality and effectiveness of future reviews.

Furthermore, Governor Bowman emphasized the need for effective supervision and regulation, focusing on core banking risks such as liquidity and interest rate risk. While supporting certain reforms, she expressed concern that higher capital requirements could hinder bank lending and competition without addressing the underlying effectiveness of supervision. She debunked the notion that recent bank stress resulted from a less assertive supervisory approach, highlighting the strength and resilience of the banking system today compared to pre-2008 financial crisis.

Governor Bowman called for improvements in supervision, transparency in supervisory expectations, and a clear regulatory approach to novel banking activities, including including banking as a service and digital assets. She stressed the importance of evaluating the consequences of regulatory revisions and considering the impact on the broader financial system. While supportive of Basel III endgame reforms, she emphasized the need for public comment and transparency in the rulemaking process.

Governor Bowman also urged policymakers to be mindful of the impact of capital requirements on international competition and the shadow banking system. Higher capital requirements could create a disadvantage for regulated banks compared to non-bank competitors, potentially shifting financial activity out of the regulated banking system.


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Federal Reserve Keeps Interest Rates Steady, Bitcoin Responds with Significant Fluctuations

According to a post on social media by Nick Timiraos, a Wall Street Journal reporter, Federal Reserve officials has agreed to keep interest rates unchanged following 10 consecutive hikes. However, the Federal Reserve hinted that they may consider a rate hike next month if the economy and inflation don’t show further signs of cooling down.

Following a two-day policy meeting, the majority of Fed members predict that there will be two more rate hikes this year. The forecast for economic growth and inflation was also raised in the economic prediction released on Wednesday.

The news from the Federal Reserve meeting had a noticeable impact on bitcoin price. The value of the cryptocurrency experienced significant fluctuations, peaking at 26,100 and bottoming out around 25,750 within minutes of the announcement. The correlation between the Federal Reserve’s policy changes and cryptocurrency market reactions highlights the interconnectedness of traditional and digital economies. The upcoming actions of the Federal Reserve will undoubtedly be closely watched by both investors and market analysts.


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JPMorgan Develops AI Tool for Federal Reserve Analysis

JPMorgan has reportedly developed an artificial intelligence (AI) tool to analyze Federal Reserve statements and speeches to detect potential trading signals. According to a Bloomberg report on April 27, the Wall Street investment bank is using a ChatGPT-based language model to digest comments from United States central bankers. The tool is designed to help JPMorgan detect policy shifts and changes that could provide the bank with a heads-up on trading signals.

The AI tool assigns a Hawk-Dove Score to Fed policy signals, rating them on a scale from easy to restrictive. “Hawkish” is a monetary policy term that refers to raising interest rates to keep inflation under control, while “Dovish” favors an expansionary monetary policy and lower rates. The tool will help JPMorgan analysts predict changes in central bank tightening. For example, hawkish policy statements could result in rising yields on one-year government bonds.

According to JPMorgan’s model, which can analyze statements going back 25 years, Fed sentiment has fluctuated recently but remains predominantly hawkish. The tool will give analysts a way to detect policy shifts that could provide the bank with a heads-up on trading signals. “Preliminary applications are encouraging,” said JPMorgan economist Joseph Lupton.

However, JPMorgan has reportedly restricted its staff from using ChatGPT, the AI chatbot that powers the new tool. The move is part of a broader trend among financial institutions, as firms aim to keep AI chatbots from learning and revealing sensitive information.

In an annual letter to shareholders earlier this month, JPMorgan CEO Jamie Dimon revealed that the bank has over 300 AI use cases in production. This latest tool is just one example of the many ways in which JPMorgan is leveraging AI to enhance its operations.

While the use of AI in finance is not new, JPMorgan’s latest tool represents a significant advancement in the field. By analyzing the language used by the Federal Reserve, JPMorgan hopes to gain insights into potential policy shifts and changes that could impact the markets. The AI tool will provide analysts with a more efficient way to sift through large amounts of data, enabling them to make more informed decisions.

Overall, JPMorgan’s latest AI tool is a promising development for the bank and for the finance industry as a whole. As AI continues to evolve, we can expect to see more banks and financial institutions turning to these powerful tools to help them gain a competitive edge in the markets.


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US Draft Bill Proposes Framework for Stablecoins

A new draft bill published in the United States aims to provide a regulatory framework for stablecoins. The bill proposes that the Federal Reserve oversee non-bank stablecoin issuers such as Tether and Circle, which respectively issue USDT and USDC. Insured depository institutions seeking to issue stablecoins would fall under federal banking agency supervision.

The bill also establishes criteria for approval of stablecoin issuers, including the ability to maintain reserves backing the stablecoins with U.S. dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of seven days or less backed by Treasury bills with a maturity of 90 days or less, and central bank reserve deposits. Issuers must also demonstrate technical expertise and established governance, as well as the benefits of offering financial inclusion and innovation through stablecoins.

Additionally, the bill proposes a two-year ban on issuing, creating or originating stablecoins not backed by tangible assets. It also mandates that the U.S. Department of the Treasury conduct a study on “endogenously collateralized stablecoins.” These are stablecoins that rely solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.

The bill also allows the U.S. government to establish standards for interoperability between stablecoins. It further determines that Congress and the White House would support a Federal Reserve study on issuing a digital dollar.

Stablecoins are a class of cryptocurrencies that attempt to offer investors price stability by being backed by specific assets or using algorithms to adjust their supply based on demand. The draft bill defines stablecoins and proposes a regulatory framework that could potentially provide greater stability and protection for investors. It also aims to prevent the use of stablecoins for illegal activities, such as money laundering and terrorist financing. If enacted, the bill would require stablecoin issuers to register and could result in up to five years in prison and a fine of $1 million for failure to do so.


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US authorities consider expanding credit line for banks

In an effort to provide First Republic Bank with a time buffer to address balance sheet concerns, US authorities are reportedly deliberating on expanding an emergency credit line for banks, according to sources familiar with the matter. This option is one of several being explored by officials, who are assessing what support, “if any,” can be provided to the bank.

According to a Bloomberg report released on March 26, First Republic Bank has been deemed “stable enough to operate” by regulators without the need for immediate intervention. However, efforts are being made by the bank to shore up its balance sheet while authorities determine what additional support can be provided.

The sources further claimed that while the expansion of the Federal Reserve’s liquidity offerings would be done in accordance with banking laws, which require that it be “broadly based” and not aimed at benefiting a specific bank, they also warned that the adjustment could be made in a way that ensures First Republic Bank benefits.

The current situation is a result of First Republic Bank facing concerns about its balance sheet, which has led US authorities to consider what assistance can be provided. As of March 26, no decision had been made by US authorities about whether to expand the emergency credit line for banks.

First Republic Bank is a San Francisco-based bank that was founded in 1985 and specializes in private banking, business banking, and wealth management. With over 100 locations throughout the US, the bank has assets of approximately $203 billion, as of December 31, 2021.

It is worth noting that the expansion of the Federal Reserve’s liquidity offerings would not be the first time that such action has been taken. In 2020, the Fed expanded its emergency lending program to support the US economy during the COVID-19 pandemic.

In conclusion, US authorities are reportedly exploring the expansion of an emergency credit line for banks to provide First Republic Bank with a time buffer to address balance sheet concerns. While the bank is deemed stable enough to operate without immediate intervention, efforts are being made to shore up its balance sheet, and authorities are assessing what additional support can be provided. The expansion of the Federal Reserve’s liquidity offerings is one option being explored, and no decision has been made as of March 26.


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Federal Reserve Admits Blindsided Oversight of SVB Collapse

The recent collapse of Silicon Valley Bank (SVB) has prompted an internal investigation by the Federal Reserve to look into the failure of the bank and the Fed’s regulation of it. Federal Reserve Chairman Jerome Powell has admitted to being blindsided by the sudden collapse of SVB despite being under their supervision. This has raised concerns about the effectiveness of the Federal Reserve’s oversight of banks in the United States.

SVB’s collapse has been linked to the Federal Reserve’s successive interest rate hikes aimed at taming inflation, which eroded SVB’s long-term bonds purchased at near-zero rates. When SVB announced that it suffered a $1.8 billion after-tax loss and was looking to raise $2.25 billion, the market panicked, leading to a $160 billion wipeout in its market cap in 24 hours. Despite SVB CEO Greg Becker urging investors to “stay calm” and not to “panic”, depositors began to request withdrawals from SVB en masse, causing a bank run.

On March 10, the United States Federal Deposit Insurance Commission stepped in, taking possession of SVB to help depositors get access to their money. Emergency measures were put in place by the government soon after to guarantee all deposits at SVB. This has raised concerns about the stability of the banking system and the need for stronger regulatory measures to prevent such occurrences in the future.

Powell has confirmed that Vice Chairman Michael Barr will be testifying next week as part of the internal investigation. Powell’s interest is in identifying what went wrong and how it can be prevented in the future. However, some politicians, including U.S. Senator Elizabeth Warren, have expressed their frustration with Powell and his regulatory approach toward large banks in the U.S. over the last five years, which they believe has been weak.

Warren believes that Powell’s nine consecutive interest rate hikes to 5% pose a risk to the economy, potentially pushing it into a recession. She has also criticized Powell’s approach to banking regulation, stating that it is a factor to blame for the recent banking crisis. The collapse of SVB has highlighted the need for stronger regulatory measures to ensure the stability of the banking system and prevent future occurrences.

In conclusion, the collapse of Silicon Valley Bank has raised concerns about the effectiveness of the Federal Reserve’s oversight of banks in the United States. The internal investigation into the failure of the bank and the Fed’s regulation of it will hopefully identify what went wrong and how to prevent it in the future. The incident has also highlighted the need for stronger regulatory measures to ensure the stability of the banking system and prevent future occurrences.


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Ted Cruz Introduces Bill to Block Fed CBDC

In a bid to prevent the Federal Reserve from launching a “direct-to-consumer” CBDC, Republican Senator Ted Cruz has introduced a bill aimed at blocking the move. Cruz is concerned that a retail CBDC could be used by the federal government for financial surveillance, and is seeking to protect American citizens’ financial privacy while maintaining the dollar’s dominance and promoting innovation. This is not the first time that Cruz has attempted to block the Fed’s CBDC initiative. He previously introduced a similar bill, along with fellow Republican Senators Braun and Grassley, in March 2022, but it failed to progress beyond the introduction phase.

Meanwhile, the Federal Reserve Bank of New York and several large financial firms have made significant progress on a U.S. dollar CBDC since President Joe Biden signed an executive order entitled “Ensuring Responsible Development of Digital Assets” in March 2022. In November, they participated in a 12-week digital dollar pilot program with Mastercard and SWIFT.

Cruz, Braun, and Grassley are not alone in their opposition to CBDCs. Florida Governor Ron DeSantis has also called on state lawmakers to introduce legislation banning the digital dollar in Florida.

However, proponents of CBDCs argue that they have the potential to revolutionize the way we use money, making transactions faster, cheaper, and more secure. CBDCs could also help to reduce the risks associated with cryptocurrencies, such as volatility and lack of regulation. They could also improve financial inclusion by providing access to banking services to people who are currently underserved by traditional banks.

It remains to be seen whether Cruz’s bill will gain any traction, but it is clear that the debate over CBDCs is far from over. As more countries explore the possibility of launching their own digital currencies, it is likely that we will see increasing calls for regulation and oversight to ensure that CBDCs are developed responsibly and with the best interests of citizens in mind.


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