According to Bitcoin Jack, Bitcoin ( BitcoinTC), has the potential to be a “good investment” if the Federal Reserve does all it can to protect the U.S. from impending recession risks.
Independent market analyst compared the cryptocurrency’s flagship, sometimes called “digital Gold” by its supporters, to the prospect of further quantitative easing by U.S. central banks. He noted that the ongoing military standoff with Russia had clogged the supply chain for essential commodities like oil and wheat, leading to higher global inflation.
In Europe , for instance, consumer prices rose 5.8% in February, compared with 5.1% the previous month. This is higher than the 5.6% forecast by the Bloomberg median economist.
It was interesting to note that the energy sector, which saw a 31% increase in prices, was more responsible for igniting anticipations than food or services.
Similar results were achieved by the U.S. consumer prices index (CPI) , which increased 7.5% year-on–year in Jan 2022, marking its highest point in almost four decades.
Jack suggested that Fed could be left with only two options due to the inflationary risks posed by the Russia-Ukraine crises.
They could raise interest rates to lower inflation, which would increase recession risk. They could also continue their quantitative ease program but with higher consumer prices, and lower U.S. dollars purchasing power.
Jack tweeted March 2: “If easing continues and inflation keeps going higher,” Jack, adding that bitcoin and gold were good bets so long as a crash/recession is avoided.
“But if all crashes, (almost), everything crashes and then you buy the Phoenixes that rise from the ashes.”
Powell suggests aggressive rate increases
Jack’s analogy was made hours before Jerome Powell (the chairman of the Federal Reserve) confirmed that he would propose a 25-basis point increase in interest rates at the next Federal Open Market Committee meeting in March.
Powell stated that the Fed was evaluating the possibility of increasing rates continuously for the remainder of 2022. However, the Fed has been compelled to follow the lines after the Russian invasion of Ukraine.
During his March testimony to the House Financial Services Committee, he stated that “we’re going to prevent adding uncertainty to an already extraordinarily difficult and uncertain moment”.
Powell didn’t rule out raising interest rates by half-point if CPI readings are higher than expected. Excerpts:
“If inflation rises higher or persists more than that, we will be more willing to act aggressively.”
Bitcoin’s safe-haven narrative continues
After Powell’s comments, Bitcoin fell by more than 2% to $43,000 on March 3, but it continued to decline.
Contrary to the move down, the U.S. Dollar index (DXY) rose 0.25 percent in the same period. This suggests that global investors were racing to the greenback’s safety in light of ongoing economic and geopolitical uncertainty.
Bitcoin’s demand grew earlier in the week due to increased interest in safe-havens. BTC’s price soared by just over 14.50% per day on February 28, registering its largest one-day gain in a whole year.
Arcane Research reported that Ukrainians were looking for “powerful fundraising tools” while Russians were trying to bypass “the strictest capital control in decades” were behind BTC’s price jump.
Arcane Research stated that speculation could have contributed to the 15% rise in Bitcoin’s price over the last seven days. They also suggested that Bitcoin/USD could reach $47,000 the next.
The latest CoinShares report showed that Bitcoin-based investment vehicles attracted $195m in capital inflows month-to-date up to February 25, 2018.
Jan Wustenfeld (@JanWues).
March 2, 2022
However, the upside potential of Bitcoin was still being clouded by fears of recession. According to Brian Coulton, chief economist of credit rating agency Fitch Ratings expected core inflation would remain high through 2022, particularly as the Ukraine-Russia crisis has exacerbated the risk of global price shocks.
“If core inflation continues to rise and inflation expectations rise, the Fed and the BOE could have no choice but move rates quickly to neutral or restrictive levels,” he wrote. He also suggested that the Fed fund rate could reach 3% by 2022. Excerpts:
In such a scenario, the US GDP growth could drop to 0.5% or less in 2023, as compared to Fitch’s baseline forecast at 1.9%.
These views and opinions are the author’s and do not necessarily reflect those of Cointelegraph.com. You should do your research before making any investment or trading decision.