Bitfinex Alpha 44 | More interest rate hikes are coming due to increased crypto volatility

06 Mar Bitfinex Alpha 44 | More interest rate hikes are coming due to increased crypto volatility

In the dream scenario, a “soft landing”, with moderating inflation and a resilient and growing economy, would be ideal. However, after more evidence of accelerating inflation and strong consumer spending in February, the possibility of higher US interest rate hikes continues to grow across the markets. The S&P 500 lost half of its January gains last month as investors reassessed their expectations. The bond market, after being optimistic in January that the Fed will soon take a break, has also changed its view on interest rate increases.

Regardless of whether the Fed can pull off a soft landing, the seemingly sticky inflation suggests the US economy is in for a rough ride in 2023. While we expect more rate hikes, the Fed’s tight monetary policy from last year is starting to take its toll on the economy. Short-term interest rates are now significantly higher than long-term interest rates, which is evident in the deep inversion of the yield curve. This affects businesses as it increases borrowing costs, and the latest ISM report provided evidence of the impact of higher credit costs in the slowdown seen in the manufacturing sector, in the latest ISM report.

As both companies and consumers are under pressure, consumers are also losing confidence in the economy. Consumer confidence remains below the range that indicates a healthy economy and suggests a prolonged economic downturn. The higher and longer the Fed allows elevated interest rates to remain in place, the more pain we expect to be inflicted on the economy.

In the crypto markets, we expect increased volatility in the short term. The total market capitalization of crypto fell below the psychologically significant $1 trillion, following the sharp drop in both Bitcoin and Ether prices at the end of last week. Market dynamics continue to be dominated by the futures market with far more significant liquidations – over $210 million in just one day – now occurring within minutes. The volatility seems here to stay.

Against this market backdrop, the US Securities and Exchange Commission (SEC) continues to have a busy first quarter. Robinhood disclosed that it has received an investigative subpoena from the SEC over its crypto listings, custody and platform operations; while Silvergate, a leading crypto bank, delayed its annual filing with the SEC as it evaluates its ability to remain operational, after suffering significant losses.

TrueUSD (TUSD) became the fifth largest Stablecoin as Binance deposited 130 million TUSD in one week. Meanwhile, Ethereum developers are ready for the final trial version of the Shanghai upgrade, which will allow the release of locked ETH. It is never uninteresting in crypto.

Happy trading!