In March 2022, the US Federal Reserve started its campaign of raising interest rates to bring down inflation; which puts enormous pressure on the Bitcoin price. That’s why at Crypto Insiders we’re keeping a close eye on what the big central bankers are saying about their fight against inflation.
It would be a good development for Bitcoin if interest rates started falling again, but the major central banks are not thinking about that just yet.
The mantra “higher for longer”.
Basically, the central banks have been demanding for months that we steer towards an interest rate climate that they describe as “higher for longer”. In short: it is to be expected that we will have to reckon with higher interest rates for a relatively long time. Last Friday, the Federal Reserve Chairman repeated this mantra during the Jackson Hole Symposium.
Federal Reserve Chairman Jerome Powell cleverly kept his central bank’s options open. Also speaking this weekend was Bank of England Deputy Governor Broadbent, who himself concluded that policies are likely to remain tightened “for a relatively long time”.
Restrictive means that the policy (theoretically) has a negative impact on growth. Kazaks of the European Central Bank (ECB) said in an interview on Saturday that another small rate hike is the surest way to solve the inflation problem. Speaking to Bloomberg, the ECB’s Nagel said it was far too early to pause interest rates.
In general, the message is: inflation is still too high, and interest rates are likely to remain at this elevated level for some time.
What does this mean for the Bitcoin price?
Basically, higher interest rates mean downward pressure on the Bitcoin price. In fact, we have been observing for weeks that Bitcoin is struggling with the macroeconomic situation. Central banks say they’re not done with their interest rate campaigns, western economies (and especially the American ones) remain solid, and that outlines a bearish Scenario for risky assets like bitcoin.
It seems that a recession is needed for central bank interest rates to be reconsidered. But even a recession would initially be pessimistic for the Bitcoin price. Because of this, you can see that analysts are somewhat cautious on bitcoin at the moment as there are a lot of headwinds from a macro perspective.
Longer term, looking towards 2024, the picture is already looking better for Bitcoin. Finally, the next bitcoin halving is scheduled for April 2024 and we may also get BlackRock’s spot bitcoin ETF/exchange-traded fund next year.