All eyes are on whether the US government manages to increase the debt ceiling further. Any failure to do so will put significant pressure on risk assets.
Since the beginning of the year 2023, Bitcoin and the broader crypto market have given a strong bounce after a brutal crypto winter in 2022. However, the party could be ending soon amid the current macro developments in the United States.
Speaking during the bank’s investor day on Monday, May 22, JPMorgan CEO Jamie Dimon issued a stark warning to investors regarding the potential for higher interest rates. Interestingly, Dimon hinted at the possibility that the Fed could increase the interest rates as high as 7%.
Jamie Dimon said that the US is already witnessing a tightening credit market with banks moving into a capital preservation mode and choosing not to extend any additional loans. Earlier this month in May, the Fed increased the benchmark interest rates to 5%-5.25%, hinting at a tighter monetary policy. While many called this to be the last rate hike by the Fed, the central bank has suggested that they could continue with rate hikes if required.
Also, the policymakers have remained divided over the possibility of future rate hikes. All things will be further clear during the FOMC meeting next month in June. However, the uncertainty has kept investors on the fence.
On the other hand, there’s no clarity on whether the US government will be able to increase the debt ceiling. So far, there’s a strong opposition to this from the US Republican Party.
Risk-Assets Like Bitcoin and Other Crypto Coins Under Stress
Dimon’s hint towards a tighter monetary will certainly put risk assets like Bitcoin and cryptocurrencies under stress. Over the last few weeks, there have been constant outflows from Bitcoin investment products.
CoinShares reported that Bitcoin investment products witnessed total outflows of $32 million for the fifth consecutive week. The official report notes:
“The outflows in Bitcoin of US$33m represented most of the negative sentiment, as it has done over the last 5 weeks. Combined outflows for these investment products now total US$235m over the course of the last 5 weeks.”
On the other hand, the weekly trading volumes for crypto assets have dropped to historic low levels. This suggests signs of a potential pullback from here onward.
Bitcoin and the crypto market have shown strong performance even during the banking crisis this year. However, Bloomberg’s senior commodity strategist Mike McGlone recently noted that there’s no point in fighting the Fed. “Don’t Fight the #Fed and Rollover Risks – #Bitcoin is down about 40% since the start of 2022 and the Fed’s tightening cycle, and its reversion process may not be done, with implications for risk assets,” wrote he.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
