Bitcoin (BTC) could be a “good bet” for investors if the Federal Reserve does everything in its power to keep the U.S. economy afloat from the risk of an impending recession, according to prominent Bitcoin Jack analyst.
An independent market analyst for the major cryptocurrency, often referred to by enthusiasts as “digital gold”, launched the prospect of further quantitative easing by the US Federal Reserve, noting that the ongoing military standoff between Ukraine and Russia has betrayed the supply chain of goods. such as oil and wheat have led to an increase in global inflation.
For example, European consumer prices jumped 5.8% year-on-year in February from 5.1% last month, higher than economists’ average forecast of 5.6% in a recent Bloomberg survey.
Interestingly, the energy sector is responsible for the negative outlook, with prices rising by 31%, which is much higher than for food and services.
Similarly, the US consumer price index (CPI) rose 7.5% year-on-year in January 2022, the highest level in nearly four decades.
Jack suggested that the continued inflationary risk of a Russian-Ukrainian crisis could give the Fed two options.
First, they can aggressively raise interest rates to bring down inflation, thereby increasing the risk of a recession. Or they may continue quantitative easing only to burden the economy with higher consumer prices and lower purchasing power of the US dollar.
“If the bailout continues, inflation will continue to rise, [Bitcoin and gold] seem like good plays as long as a recession/crash is avoided,” Jack said in a March 2 tweet, adding:
“But if everything collapses, (almost) everything collapses, and you buy a phoenix rising from the ashes.”
Powell points to sharp rise in prices
Jack’s analogy came hours before Federal Reserve Chairman Jerome Powell confirmed he would propose a 25 basis point rate hike at the next FOMC meeting in mid-March.
Powell noted that the Fed is considering two further rate hikes before the end of 2022. But the recent Russian invasion of Ukraine has forced them to “tread carefully.”
“We want to avoid adding uncertainty to what is already a very difficult and uncertain moment,” he told the House Financial Services Committee during his testimony in March.
However, Powell did not rule out the possibility of raising interest rates by half a percentage point if the next values of the consumer price index are higher than expected. Excerpt:
“To the extent that inflation gets higher or higher, we would be willing to enter more aggressively.”
Bitcoin Safe Harbor Story Continues
Bitcoin continued to fall after Powell’s comments, briefly dropping more than 2% to below $43,000 on March 3rd.
The downtrend came in contrast to the jump in the US dollar index (DXY), which rose by 0.25% over the same period, indicating that global investors are rushing to protect the US currency from ongoing economic and geopolitical uncertainty.
Daily BTC/USD price chart against DXY. Source: Trading View
The quest for a safe haven also boosted demand for bitcoin earlier this week. On February 28, the price of BTC rose by just over 14.50% on the day, posting the biggest one-day gain in a year.
An Arcane Research report confirmed that Ukrainians looking for “reliable fundraising tools” and Russians trying to bypass “the most stringent capital controls in decades” were behind the bitcoin price spike.
“This speculation may have contributed to the 15% increase in the price of bitcoin over the past seven days,” Arcane Research wrote on March 1, adding that the price of BTC/USD could rise to $47,000 after that.
Similarly, Bitcoin-based investment vehicles have raised $195 million in capital injections since Feb. 25, according to the latest report from CoinShares.
Related: Billionaire Admits Wrong About Bitcoin As Citadel Looks At Crypto Markets
But the risk of a recession remained above Bitcoin’s positive outlook. For example, Brian Colton, chief economist at Fitch Ratings, has predicted that core inflation will remain high through 2022, especially as the crisis between Ukraine and Russia has exacerbated the risk of global price shocks.
“If core inflation remains high and Fed inflation expectations rise, the BoE will have no choice but to move interest rates quickly to a neutral or capped level,” he wrote, adding that he could raise the Fed rate to 3%. By the end of 2022. Excerpt:
“In such a scenario, US GDP growth could fall to 0.5% or less by 2023, compared to Fitch’s baseline forecast of 1.9%.”
