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Bad News is Good News: Bitcoin Plays With USD 24K as Traders Speculate on Fed Pivot and US Recession

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Last updated: October 23, 2023 08:52 EDT

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Fredrik Vold

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October 23, 2023 08:52 EDT

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Fed Chair Jerome Powell. Source: A screenshot, Youtube/Federal Reserve

The price of bitcoin (BTC) traded above USD 24,000 on Friday morning (UTC), reaching its highest in nearly 7 weeks, after news that the US has entered what many consider a technical recession, as well as speculations that the US Federal Reserve (Fed) will soon turn from aggressive tightening to easing.

The gains in the crypto market this week started on Wednesday, when the Fed announced its latest 75-basis point rate hike in the US, a move that would normally be seen as negative for risk assets. But since the hike was largely expected by market participants, attention instead shifted to the tone of the Fed’s statement and Fed Chair Jerome Powell’s press conference, which was seen as slightly less aggressive than before.

In his press conference, Powell said that “another unusually large increase could be appropriate at the next meeting” in September. However, he also added that as rates become more restrictive, it will likely be appropriate to “slow the pace of increases.”

Additionally, bullish sentiment among traders was boosted by comments from Powell that an interest rate of 2.25% to 2.5% by the Fed is considered “neutral.”

The wording has puzzled many, including the well-known investor Bill Ackman, founder and CEO of Pershing Square Capital Management, who wrote on Twitter that it “makes no sense” to call a rate of 2.25% to 2.5% neutral when inflation is 9%.

The comment was picked up by Sven Henrich, a popular trader on crypto Twitter and founder of NorthmanTrader, who advised his followers to watch closely for any new comments from Fed officials in the coming days.

If Powell made another communication error then we should see a barrage of Fed speakers in the next few days aiming to recalibrate sudden optimistic expectations.
If the Fed intended to signal a pivot ahead of midterms then no such disavowing will take place.
Watch this space. https://t.co/quhpu1g168
— Sven Henrich (@NorthmanTrader) July 29, 2022

Notably, some already warned that the market may have read Powell in the wrong way, and stressed that the Fed remains committed to bringing inflation down.

“The markets shot first and asked questions later,” Neil Dutta, head of the US economic research at Renaissance Macro Research LLC, told Bloomberg in.

Dutta added that he does not think inflation will come down in a way that makes rate cuts plausible.

“Powell said repeatedly the economy needs to slow down to meet their goals. A modest recession probably won’t do the job. They are going to have to do more,” Dutta said.

The same article quoted Roberto Perli and Benson Durham of investment bank Piper Sandler as saying that the market reaction was classic for situations when “the odds of rate cuts had increased or their timing had been brought forward.”

However, Powell’s comments were “not the words of a Fed chair who is pivoting towards a dovish stance,” Durham and Perli warned.

Meanwhile, the most recent gains in the crypto market came as the US gross domestic product (GDP) numbers for the second quarter on Thursday showed a decrease of 0.9%. That followed a decrease of 1.6% in the first quarter.

Two consecutive quarters of negative GDP growth is by many considered the very definition of a recession. However, the White House has refuted that the US is in a recession, pointing instead to other economic indicators such as the labor market, which they say shows that the US economy remains strong.

Still, Mati Greenspan, the founder and CEO of Quantum Economics, argued in a newsletter on Thursday that,

“It’s official, the US economy is now in a technical recession. Stocks and other risk assets are having a great day.”

A recession in the US has been interpreted as yet another sign that the Fed will soon be forced to slow down the pace of interest rate hikes, and eventually turn to cutting rates again.

This was also pointed to by Greenspan, who further noted that regardless of a technical recession, high inflation, rate hikes, and other risks, “investors are clearly optimistic about the future.”

On Friday at 12:06 UTC, BTC stood at USD 23,723, up 2.6% for the past 24 hours and 2.5% for the past 7 days. At the same time, ethereum (ETH) traded at USD 1,680, up 2.4% for the day and 6.7% for the week.

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Learn more:
– US Fed Fires Another 75 Basis Points Rate Hike at Record Inflation, Bitcoin & Ethereum Jump
– We Now Understand How Little We Understand About Inflation – Fed’s Powell

– US GDP Slips Again
– Inflation Is 2022’s Boogeyman

– European Central Bank Raises Rates for the First Time in 11 Years
– Pandemic is the Biggest Threat to Markets in the Next Decade – FTX CEO