Main Takeaway: Crypto Markets Up 5%, Breathe In Breathe Out
These gains can be attributed to positive remarks by Fed Chairman Jay Powell after he spoke at the Cato Institute and expressed his hopes of fighting inflation without having high social costs of monetary tightening.
This is in line with our previous predictions that Powell is looking for a soft landing for the US economy and not to cause global disruptions by tightening too aggressively. However, markets are still pricing in a 75 bps rate hike later this month (September 21). So traders and investors may have to wait until November to get a slight easing on the rate hike intensity. It’s predicted that we’ll see a 50 bps rate hike in November.
On the European continent, the ECB raised rates by 75 bps, the highest ever, to combat inflation in the Eurozone. Crypto prices did not show any impact from this hike, which is positive news because trends were pointing to even lower lows than in June.
Key Stories: US Policy Trifecta Aiming At Cryptos
Three stories came out from the US government that can potentially be bearish for the crypto market. The first was Powell’s remarks that stablecoins must be appropriately regulated and need legislation. On the other hand, he mentioned that stablecoins can play a role in the financial system. However, it’s important to distinguish what type of stablecoin he’s referring to – USDT, USDC, or a US-sponsored CBDC.
Second is SEC Chair Gary Gensler’s support for the Senate Crypto bill. Gensler has come out in recent days voicing again his perspectives that most cryptocurrencies besides Bitcoin are securities and thus fall under the SEC’s jurisdiction. Both Gensler’s attitudes towards the security question and support for crypto legislation in Congress can potentially be negative towards cryptos moving forward. However, Congress will be undergoing a significant changeup in the coming Midterms, so the current legislation will likely change.
The third is a recent note from the White House’s OSTP that stated crypto mining is a threat to the US reaching its climate ambitions and could potentially result in an executive order to reign in the industry. This is something to look out for in the coming year as various States are putting forward and looking to attract the crypto industry, Texas in particular. If there’s an EO from the President, crypto could experience another wave of FUD, thus causing an exodus of crypto mining from certain jurisdictions.