Fed's 'Higher for Longer' Shakes Markets: How Low Will Bitcoin Go?
Fed's 'Higher for Longer' Shakes Markets: How Low Will Bitcoin Go?
Digital Asset Market: Highlighting the importance of strong compliance programs, the U.S. government has sanctioned an Ethereum wallet connected to Jimenez Castro, a Mexican individual involved in a money laundering operation that transfers proceeds from fentanyl sales to Sinaloa cartel leaders in Mexico. The wallet received nearly $740,000 in deposits in a two-month period and is part of a larger effort to combat narcotics operations.
In other news, the recently proposed tax rule for digital assets in the United States could have a devastating effect on the digital ecosystem in America. The rule would require new brokers to report sales and exchanges of digital assets, causing privacy and security concerns for users. The proposed rule also fails to consider the unique characteristics of digital assets and may impede innovation and drive progress to other countries.
Macro Economics: Consumer confidence declined for the second consecutive month in September 2023, with the expectations index falling to its lowest level in a year. This was largely due to concerns about rising inflation, interest rates, and political turmoil. Despite this, Americans who are the driving force behind the global economy are still spending money, and the economy is performing better than expected. However, there are signs of a slowdown in the housing market, with home sales and prices both experiencing declines. The tight market conditions and sustained high mortgage rates contribute to the continued rise in home prices.
Equities: Wall Street's main indexes, including the Dow Jones and the S&P 500, plunged on Tuesday as investors continued to be concerned about the impact of rising 10-year Treasury yields and the likelihood of a partial government shutdown. Megacap growth stocks, such as Apple and Microsoft, were hit hard, while Amazon's stock continued to decline after the FTC filed an antitrust lawsuit against the company. All 11 S&P 500 sectors were trading lower, with utilities being the worst performer. The energy sector fared better due to rising oil prices. The stock market is on track to record its first quarterly decline this year. Traders are closely watching economic data and remarks from Fed officials for signs of the future of monetary policy. Shares of drug developer Immunovant and Soleno Therapeutics surged after their respective drugs showed positive trial results. Declining stocks outnumbered advancers on both the NYSE and Nasdaq exchanges. The S&P 500 recorded only one new high and the Nasdaq recorded 19 new highs, while both indexes recorded a significant number of new lows.
The Fed and the Banks: Fed’s expected policy got reflected in the recent US Treasury issuance of $48 billion in 2-year bonds, the largest offering since April 2022. The auction was well-received, with a high yield of 5.085%, the highest since July 2006. The bid to cover was lower than last month, and the auction was mostly awarded to Indirect buyers. This was a solid auction, especially considering the current market conditions. However, the high interest rate may be a cause for concern in the future.
Geopolitical: The United States' top military officer Mark Milley admits that the Ukrainian counteroffensive may only have until the autumn to achieve its goals in the ongoing conflict with Russia. Despite President Biden's promises of unwavering support and Vice President Kamala Harris' strong words against Vladimir Putin, U.S. intelligence agencies and Ukraine's struggles with recruitment and desertion suggest that the counteroffensive will likely fail. If this happens, the aid offered by the Biden administration will only prolong the war and result in more deaths and destruction. Is it time for the U.S. to accept the reality that there is no winning this war and push for an end to the conflict. The alternative is a partition of Ukraine and a return to its centuries-long struggle for national unification with Russia as its enemy.
View from our desk
The recent uptick in U.S. Treasury yields is sending ripples of concern through both traditional and digital asset markets, as expectations grow for prolonged higher interest rates. This sentiment has already impacted the Nasdaq, which experienced a 1% decline, and has put Bitcoin under considerable pressure, currently trading at around $26,200. While there's mounting concern that the $26,000 support level may not hold amidst the prevailing market gloom, we anticipate that the $25,000 level will serve as a robust safety net for Bitcoin.
Turning our attention to the Federal Reserve, Chairman Jerome Powell has hinted at the possibility of another rate hike. However, we maintain our long-standing belief that the Fed will opt for rate stability over further hikes. The current economic landscape, characterized by fluctuating market conditions, makes it more likely that the Fed will maintain interest rates at their current levels for an extended period.
In summary, the financial markets are navigating a complex web of factors, from Treasury yields to Federal Reserve policies. While traditional assets like the Nasdaq are feeling the pinch, Bitcoin's resilience at key support levels offers a glimmer of stability. As for the Fed, despite external pressures and market speculations, we expect a more conservative approach to interest rate adjustments in the near term.
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The 1Konto Team
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