Bitcoin Rises with All Eyes on Ukraine, Fed’s Next Move
The price of bitcoin (BTC) has been on the rise since the beginning of the week, with traders now keeping an eye on developments in Ukraine, as well as on the US Federal Reserve’s (Fed) next move to combat high inflation.
At 10:26 UTC on Tuesday morning, BTC traded at USD 44,137, up 4.5% for the past 24 hours and 0.6% over the past 7 days. At the same time, ethereum (ETH) stood at USD 3,104, up 8% for the past 24 hours and down 1.6% for the past 7 days.
Although not directly related to bitcoin and the digital asset space, any Fed actions and developments in Ukraine are considered key to the stock market’s performance over the near to medium-term. And with stocks and bitcoin being increasingly correlated, developments in the broader economy are also expected to have an impact on the direction bitcoin takes.
Commenting on the current state of the stock market on CNBC on Monday, Mohamed El-Erian, a well-known economist and President of Queens’ College, Cambridge University, said that “European markets are very worried” about an escalation of the conflict in Ukraine, where a potential Russian invasion would be the most serious outcome.
“There is a significant risk-off tone because of the impact on energy,” El-Erian said, adding that energy has “one of the biggest stagflation influences on the economy,” and that more stagflation is “the last thing we need.”
Stagflation is the term used for situations when economic stagnation – or a lack of growth – is combined with high inflation.
As of Tuesday morning, however, fears of an invasion appear to have eased somewhat, after Russia’s foreign minister Sergei Lavrov was quoted by Russian news agency TASS as saying about ongoing diplomatic talks that “I don’t think our possibilities have been exhausted.” However, he also added that diplomatic discussions “should not last endlessly.”
The comments from foreign minister Lavrov came on the same day as Russian defense minister Sergei Shoigu said that some of the military drills that have been taking place close to Ukraine’s borders are ending, also according to TASS.
As reported by CNBC on Monday, the stock market responded to the comments by moving higher. Bitcoin, meanwhile, saw mixed performance around the same time, before climbing higher later on Monday night in the US.
Per Interfax, some troops have started withdrawing from Crimea and returning to their bases following the completion of the planned drills, Russian Defense Ministry spokesman Igor Konashenkov was quoted as saying.
German Chancellor Olaf Scholz arrived in Moscow on Tuesday to meet President Vladimir Putin in an effort to avoid further escalation and a potential war. Aljazeera stated that Sholz aimed to “hammer home the message from the West that they are open to dialogue about Russia’s security concerns but will impose sanctions if it invades Ukraine.”
To rate hike or not to rate hike…
Meanwhile, last Friday, rumors started circulating in the Cryptoverse that the Fed had called an ‘emergency meeting’ on the following Monday to discuss interest rates in the US, with some wondering whether the meeting meant that the Fed would announce a rate hike already this week.
However, no such announcement has yet been made. Moreover, it was pointed out by several members of the crypto community that the meeting, officially said to be held under “expedited procedures”, is in fact a fairly regular occurrence, and that the Fed also held a similar meeting in January.
Nik Bhatia, a finance professor at the University of Southern California and author of the popular bitcoin book Layered Money, wrote in a blog post on Monday:
“With the emergency Valentine’s Day rate hike off the table, markets will focus on whether the first hike is 25 or 50 basis points.”
Bhatia added that whether the hike is 0.25% or 0.5% doesn’t really matter, because the important thing is that:
“[H]hikes are coming, the yield curve will invert, and the Fed will eventually have to reverse course.”
The comments from Nik Bhatia came as James Bullard, President of the St. Louis Federal Reserve, told CNBC that he believes the Fed should raise interest rates more quickly than originally planned.
“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation,” Bullard said, before stressing once again:
“This is a lot of inflation.”
The St. Louis Fed President added that the central bank’s “credibility is on the line,” and argued that it is necessary for the bank to react. “However, I do think we can do it in a way that’s organized and not disruptive to markets,” Bullard said.
Meanwhile, reports also emerged today that the investment banking giant Goldman Sachs has cut its target for the S&P 500 index from USD 5,100 to 4,900.
As of Monday’s close on Wall Street, the index traded at just over USD 4,400, down by 0.38% for the day.
The cut in the bank’s target is a result of its new prediction that the Fed would raise interest rates seven times this year, as opposed to the five rate hikes it expected previously.
“The macro backdrop this year is considerably more challenging than in 2021. However, we continue to expect that equity prices will rise alongside earnings and reach a new all-time high in 2022,” the bank wrote in a note to clients, per Business Insider.
Meanwhile, certain members of the Cryptoverse asked their fellow members about their opinions on the markets:
#BTC— Mr. Anderson (@TrueCrypto28) February 14, 2022
What happens first?
If bearish, what's your main reason?— 朱溯 🐂 (@zhusu) February 14, 2022
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