The independent market analyst pitted the flagship cryptocurrency, often called “digital gold” by its enthusiasts, against the prospects of further quantitative easing by the U.S. central bank, noting that the ongoing military standoff between Ukraine and Russia had choked the supply chain of essential commodities, such as oil and wheat, resulting in higher global inflation.
For instance, consumer prices in Europe jumped 5.8% year-over-year in February compared to 5.1% in the previous month, greater than the median economist forecast of 5.6% in a recent Bloomberg survey.
Interestingly, the energy sector was responsible for whipsawing anticipations by recording a 31% rise in prices, way higher than food and services.
Similarly, the U.S. consumer price index (CPI) advanced 7.5% year-on-year in January 2022, its highest level in nearly four decades.
Jack hinted that the ongoing inflationary risks of the Russia-Ukraine crisis could leave the Fed with two options.
First, they could hike interest rates aggressively to bring inflation down, thus raising recession risks. Or, they could continue their quantitative easing program only to burden the economy with higher consumer prices and a lower U.S. dollar purchasing power.
“If easing continues, inflation keeps going higher, they [Bitcoin and gold] seem good bets as long as a recession/crash remains avoided,” Jack tweeted March 2, adding:
“But if everything crashes, (almost) everything crashes and you buy the phoenixes that rise out of the ashes.”
Powell indicates aggressive rate hikes
Jack’s analogy appeared hours before Jerome Powell, the chairman of the Federal Reserve, confirmed that he would propose a 25 basis point increase in the interest rates in the next Federal Open Market Committee (FOMC) meeting mid-March.
Powell noted that the Fed had been assessing the prospect of raising rates consecutively for the rest of 2022. But the recent invasion of Ukraine by Russia has prompted them to “proceed carefully along the lines.”
“We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment,” he told the House Financial Services Committee during his testimony on March .
However, Powell did not rule out the possibility of raising interest rates by a half-point percentage if the next CPI readings come any higher than anticipated. Excerpts:
“To the extent inflation comes in higher or is more persistently high than that, then we would be prepared to move more aggressively.”
Bitcoin’s safe-haven narrative sustains
Bitcoin continued its decline after Powell’s remarks, briefly dropping by over 2% to below $43,000 on March 3.
The move downside appeared in contrast to a jump in the U.S. dollar index (DXY), which rose 0.25% in the same period, suggesting that global investors had been rushing to the greenback’s safety against the ongoing economic and geopolitical uncertainty.
Appetite for safe-havens also boosted Bitcoin’s demand earlier this week. On Feb. 28, BTC’s price rallied by a little over 14.50% in a day, registering its biggest one-day increase in a year.
An Arcane Research report asserted that Ukrainians seeking “powerful fundraising tools” and Russians trying to circumvent “the strictest capital controls in decades” were behind the BTC price jump.
“This speculation may have contributed to the 15% increase in the Bitcoin price over the past seven days,” Arcane Research wrote on March 1, adding that BTC/USD could climb to $47,000 next.
Similarly, Bitcoin-based investment vehicles attracted $195 million worth of capital inflow month-to-date until Feb. 25, the latest CoinShares report revealed.
Another massive #Bitcoin inflow to the Canadian Bitcoin Purpose spot ETF on Tuesday with 1.15k $BTC added to the fund! AUM is now sitting at a new all-time high of 33.5k bitcoin! pic.twitter.com/PuP4vQw0hD
— Jan Wüstenfeld (@JanWues) March 2, 2022
Related: Billionaire admits he was wrong about Bitcoin as Citadel looks to crypto markets
But risks of recession kept clouding over Bitcoin’s upside potential. For instance, Brian Coulton, chief economist at credit rating agency Fitch Ratings, anticipated core inflation to remain high throughout 2022, especially as the Ukraine-Russia crisis exacerbated the risks of global price shocks.
“If core inflation remains high and inflation expectations rise the Fed, and the BOE could be left with no choice but to quickly move rates to neutral or restrictive levels,” he wrote, adding that it could push the Fed fund rate to 3% by the end of 2022. Excerpts:
“US GDP growth could fall to 0.5% or below in 2023 in such a scenario, compared with Fitch’s baseline forecast of 1.9%.”
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