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The crypto industry could experience a significant decline as the Federal (Federal) Reserve appears to be losing market control. This new status quo could result in even more aggressive measures affecting traditional markets and cryptocurrencies.
A report released on January 29 by Michael J. Kramer – founder of Mott Capital, suggests that the FED needs to “push back against the market before it’s too late.” Since the Federal Open Market Committee (FOMC) meeting in December, there has been a significant easing of financial conditions.
This easing of financial conditions has led to an increase in the prices of raw materials, a reduction of mortgage rates, A dollar that's slipping, and the recovery of important crypto assets and shares, including bitcoin, ethereum, and others.
Kramer said the Federal Open Markets Committee (FOMC) meeting in February will be crucial as the Fed will have to reverse the current easing of financial conditions. Furthermore, the founder of the capital currency estimates that current market conditions are at the same level as when the Fed started raising interest rates.
For Kramer, pushing back at this point maybe even more complex and trickier than when Fed Chair Jerome Powell gave his Jackson Hole speech. The financial institution is challenged to restore price stability through "softening" of working conditions.
So the Fed raised interest rates. Their goal is to lower inflation, resulting in them using "powerful tools to balance supply and demand".
In addition, according to the Kramer report, investors know that the EDF is nearing the end of its growth cycle rather than the beginning. The market also anticipates that inflation will continue to trend downwards. As a result, any aggressive action on the part of the financial institution may surprise the traditional crypto market, resulting in larger than anticipated losses.
In its consideration, Michael j. kramer says that the fed has two options: increase rates by 50 bps, This could come as a great surprise to the markets, or to point out that the financial terms have been too relaxed, that may extend the rate crunch cycle.
What Cards Does The FED Has Left Under The Sleeve
The Federal Reserve's options are currently limited. Kramer claims the market does not believe the FED when it wants monetary policy to be sufficiently restrictive and is willing to endure the current market conditions to kill the inflationary impulses that still exist.
In Kramer's view, the Fed can go against the collective conviction that it will only raise rates by 25 basis points and instead by 50 basis points. Powell may also be able to deliver a more important message than Jackson Hole last year.
Otherwise, the Fed may have to raise the question of whether the pace of quantitative tightening and the outcome of the balance sheet should increase. In short, Kramer believes that anything other than the above options would suggest that the FED is comfortable with the current easing of financial conditions and is willing to let the market take control and drive monetary policy.
What will be the reaction of the cryptography market?
The cryptography industry has high expectations for this week's federal contracting committee meeting and Powell's speech. Digital assets face strong resistance after spikes in volatility since early 2023.
It seems to be a race against the clock and what the government is doing to see how investors and prices are reacting to potentially more aggressive measures. The capitalization of the crypto market has increased, and tightening measures can lead to another crash for cryptocurrencies.
The vast majority of cryptocurrencies follow the course of Bitcoin (BTC), and since the weekend, Bitcoin has been slightly corrected. As far as press time is concerned, Bitcoin has not managed to gain a higher territory, down 1.6% in the last 24 hours, auctioned at $23,140, a gain of 1.9% in the last seven days.
