The Bitcoin price has had a fantastic start to 2023, with an increase of almost 40 percent in January. Then some sand got into the engine and it looks like we’ll have to make do with that for now. Inflation is proving to be more stubborn than expected, resulting in a tougher Federal Reserve, which is not good for Bitcoin.
Harsh statements Powell
Federal Reserve Chairman Jerome Powell was scheduled to speak twice this week, and both times he was tough and clear. “If the data suggests that larger rate hikes are needed, we are prepared to pick up the pace,” Powell said.
Not long after that ruling, the probability of a rate hike of 0.50 percent increased. Where those 30 days ago was still around 10 percent, there is now a chance of about 80 percent of an interest rate increase of that order of magnitude.
The chance of a smaller interest rate increase of 0.25 percent is therefore currently just under 20 percent. In that respect, there is a good chance that the pace of rate hikes will pick up again on March 22, the date of the next interest rate meeting.
Yesterday, for example, Powell said the following: “The damage will be extremely great if we don’t get inflation under control. That damage far exceeds the costs of bringing inflation down.”
Not good for Bitcoin
Statements like these from the Chairman of the Federal Reserve are anything but good for Bitcoin. It therefore seems that a difficult period is coming for Bitcoin. If interest rates actually rise by 0.50 percent on March 22, then we know the Federal Reserve is serious.
That increase would raise interest rates from the current 4.50 – 4.75 percent to 5.00 – 5.25 percent. For many investors, it is then extremely attractive to temporarily invest in US government bonds.
After all, this will give you an almost guaranteed return of around 5.25 percent. Compare that to the risks you run with Bitcoin, crypto and shares and for many people the choice is easily made. Especially in times of uncertainty, hiding your assets in government bonds is an interesting option.