What does the Fed’s meeting in Jackson Hole mean for Bitcoin?

Last week, Bitcoin (BTC 1.82%) fell 10%, the biggest drop in two months. That has led to growing speculation that Bitcoin could fall below $20,000 as part of an ongoing bear market correction. And Bitcoin super bear Peter Schiff has even suggested that Bitcoin could crash to $10,000.

So Bitcoin investors are understandably keeping a close eye on the Federal Reserve’s 45th Annual Economic Symposium in Jackson Hole, Wyoming, this week. They will look for hints about what might come next from decision makers. Any dramatic change in policy by the Fed could send the price of Bitcoin significantly up or down.

Jackson Hole and crypto

An important point to remember is that Jackson Hole is not a policy-setting event. Instead, it is mainly an academic conference where 120 of the world’s top central bankers, economists and policymakers gather to discuss key economic trends and issues. Typically, less than half of the participants are actually central bankers. The theme for this year’s event is “Reassessment of constraints on economics and politics.”

Image source: Getty Images.

In his keynote address on August 26, Fed Chairman Jerome Powell is expected to discuss the macroeconomic landscape facing the Fed and hint at whether the central bank is done raising interest rates. This is the story that gets all the attention in the mainstream media. Everyone is eager to know how the Fed feels about inflation, and Bitcoin investors will be watching for any potential signal of a policy shift.

The consensus now seems to be that any further tightening by the Fed will send Bitcoin lower. Conversely, if the Fed signals that it is done tightening, Bitcoin could shoot higher.

Bitcoin and Institutional Investors

What seems to be different about this year’s Jackson Hole event is all the attention on Bitcoin coming from institutional investors. Large foundations, endowments and pension funds thinking about investing in Bitcoin are concerned about the impact any Fed action could have on their crypto holdings. Coin basefor example, even released a special research note on the Jackson Hole event (“What to expect in Wyoming”) for its institutional investor base.

Remember that Coinbase recently entered into a partnership agreement with Black stone, the world’s largest asset manager with $10 trillion in assets under management, so there’s a lot of serious money waiting to see what the Fed signals in Jackson Hole. Those institutional money managers will almost certainly tune in on Friday morning to watch Powell’s speech live. Much of the price action in Bitcoin will depend on what these large institutional investors do.

Bitcoin and cryptocurrency policy

There are a number of other narratives that could come out of the Jackson Hole meeting that could have at least an indirect impact on Bitcoin. Academics and decision-makers will present papers, convene discussions and give speeches throughout the three-day event. While the exact agenda has yet to be released for this year’s event, crypto has been a hot-button topic throughout 2022, so some sessions at Jackson Hole could focus on Bitcoin and crypto.

One issue that has been particularly important to the Fed is the role of “cryptobanks”. The Fed recently issued additional guidance on the role of banks seeking to engage in crypto-asset-related activities. The hope from crypto investors is that the Fed will become much more supportive of these crypto banks, and that would be good news for Bitcoin.

There may also be much more insight on the regulatory front for cryptocurrency. In the past, Powell has raised questions about the risk profile of cryptoassets, but he seems to be coming to the conclusion that the type of risk that Bitcoin poses is manageable by the US financial system. Any loosening of the regulatory environment surrounding Bitcoin will be a huge positive.

Bitcoin and retail investors

Ultimately, if you plan to buy and HODL (crypto lingo for “hold”) Bitcoin, the most important news coming out of Jackson Hole may be related to the academic papers released at the event, not the Powell speech. These papers could give investors a much more detailed view of the long-term future of Bitcoin and how central bankers (and their friends) view crypto.

Yes, anti-inflation measures by the Fed are important and could weigh heavily on Bitcoin’s short-term fortunes. But even if Bitcoin breaks the all-important $20,000 mark as a result of Fed tightening, it’s much more likely that the number will seem small one day.