Bitcoin and stocks await Fed signal in second quarter

A banking crisis (the first one since the birth of Bitcoin), pressure from the US government where Senator Elizabeth Warren is forming an “anti-crypto army” and lawsuits against both Coinbase and Binance.

All these events tried to bring crypto down in the first quarter of this year and yet the biggest digital currency, Bitcoin, ended those first three months with a gain of 70%, becoming the best investment choice investors could have made so far in 2023. For the second quarter, the crypto market is watching to the same institution as the stock markets is peering at: the Federal Reserve and its chairman Jay Powell.

Safe haven

The 70% rally Bitcoin saw in the first quarter was similar to the first quarter of 2021, which then marked the start of an incredible two-year bull run.

“The rally has continued in March even after recent bank closures,” explained Jeff Cantwell, an equity analyst at Wells Fargo. “While the rebound has more than one underlying reason, our conversations with investors have centered on three: crypto as a ‘flight to safety’ given banking turbulence; positioning (short covering); and a shift ‘at the margin’ by investors to ‘risk on’ as prospects of a Fed pivot have increased.”

That Federal Reserve “pivot” Jeff refers to is the hope many investors now have that the next Federal Reserve meeting will be about the end of rate hikes, or when they’ll finally start cutting rates again (perhaps as from the summer of 2023). ). If that happens, crypto could get another huge boost.

For that to happen, Jay Powell, the chairman of the Federal Reserve, will have to see a clear signal that inflation has lowered significantly. Such a signal became very visible in Europe last week.

Eurozone #inflation cools significantly to 6.9% YoY in March, down from 8.5% in Feb and lowest level since Feb2022, AND lower than estimated 7.1% BBG poll. But core inflation, which excludes volatile items, quickened to 5.7%, a fresh ATH, showing inflation pressure remains high. pic.twitter.com/Y4b21iFTTn

— Holger Zschaepitz (@Schuldensuehner) March 31, 2023