Bitcoin (CRYPTO:BTC) surged nearly 10% yesterday after hitting $20,100 as the Fed’s announcement of a 75bp rate hike resulted in a short contraction. Although a 50 bps hike was anticipated for many weeks, last Friday’s inflation data forced the market to price in a more aggressive hike with heavy selling pressure. Therefore, a 75 bp hike was priced in for the short term, which led to a rebound. Since then, the market has cooled slightly and there could be more declines in the coming months.
This is due to concerns about an earnings recession on the horizon, as a result of the aggressive monetary policy of the Federal Reserve. According to Bank of America, stagflation fears are the highest since 2008, and earnings prospects are also the worst since the GFC (Global Financial Crisis). Global earnings expectations are expected to fall 72%, which is the weakest guidance since the GFC. If this comes to fruition, it could lead to an increase in foreclosures and bankruptcies. An example of this that is already happening is Revlon, an American multinational cosmetics company, which declared bankruptcy for not being able to cover its debt obligations.
Consumer debt has risen to its highest levels seen since record data began 40 years ago, and the personal savings rate is down to 2008 levels. A recession would form a macro environment that is poor for global markets, specifically crypto. As people have less money to spend on essential items, they may have less capital to invest in risky assets like crypto and stocks.
Despite these macro headwinds, cryptocurrency hedge fund managers remain bullish on Bitcoin price data. PwC conducted a survey on a sample of 77 specialized crypto hedge fund managers, whose total assets under management (AUM) were $4.1 billion in 2021. PwC noted: “Most of the predictions were within the $75,000 range. at $100,000 (42%), with another 35% predicting BTC price to be between $50,000 and $75,000 by the end of 2022.” I think this is an example of cryptocurrency hedge funds not considering the macro environment with their outlook for cryptocurrencies in the medium term. This is shown by one of the largest crypto hedge funds, Three Arrows Capital, taking on a substantial margin, which they now potentially cannot afford. In my opinion, regulation is needed to stop the drastic impacts of human greed on crypto markets, and I look forward to clearer regulation that brings more traditional finance institutions into the space.
This article was submitted by an outside contributor and may not represent the views and opinions of Benzinga.