As Bitcoin recently smashed through its previous all-time high, JPMorgan warns that this surge may force the Federal Reserve to reconsider planned interest rate cuts, fearing inflationary risks. Meanwhile, Deutsche Bank strategists anticipate a potential Fed rate cut in June, foreseeing increased risk appetite and liquidity that could fuel a Bitcoin rally.
Market Expectations vs. Caution
Notably, the market currently anticipates at least three rate cuts from the Federal Reserve in 2024, with the first expected in June, according to the CME FedWatch Tool. However, JPMorgan’s strategist, Marko Kolanovic’s analysis introduces a note of caution about a more measured approach from the Fed.
Kolanovic states that Bitcoin’s recent rally, coupled with record stock market highs, may compel the Federal Reserve to reconsider its anticipated interest rate cuts later in the year. Kolanovic warns that premature rate reductions could exacerbate inflation or fuel further inflationary pressures, stating:
“This may keep monetary policy higher for longer, as premature rate cutting risks further inflating asset prices or causing another leg up in inflation.”
Federal Reserve’s Stance and Bitcoin Experts’ Warnings
Federal Reserve Chair Jerome Powell has consistently advocated for a cautious approach to adjusting interest rates. During a recent session with the House Financial Services Committee, Powell emphasized the need for more data before contemplating rate cuts. He acknowledged positive developments in controlling inflation and achieving near-50-year low unemployment rates.
As the S&P 500 reached all-time highs following Powell’s hints at potential rate cuts, cautionary voices within the bitcoin sphere emerged.
Fed Rate Cut Would Prompt BTC Price Surge
Kolanovic, in line with his cautionary perspective, maintains a bearish stance on stocks. He believes that the market is currently priced for perfection, displaying low possibilities for investors hedging against risks.
On the other hand, Deutsche Bank strategists Marion Laboure and Cassidy Ainsworth-Grace highlighted positive factors contributing to potential digital asset gains in a recent MorningStar interview.
Particularly emphasizing the optimistic economic outlook, the two anticipate more accommodating central banks, including a potential Fed rate cut in June. This, they suggest, could stimulate risk appetite and enhance market liquidity, leading to a shift in investor preferences toward higher-yielding alternative assets like bitcoin.
Factors Behind the Anticipated Surge
Laboure and Ainsworth-Grace pointed to the massive inflows into the recently launched bitcoin Exchange-Traded Funds (ETFs) and the impending halving as some of the key factors providing a safety net for digital asset appreciation. Moreover, they also believe that the increased regulatory measures and the robust performance of the U.S. economy would also help Bitcoin in its upward rally. They state:
“More investors will likely seek out higher-yielding alternative assets as treasury returns decline. This flow of capital into nontraditional investment classes like cryptocurrencies could further support an ongoing rally in digital currency prices.”
Amid these statements by financial giants, the trajectory of bitcoin hangs in the balance, influenced by the upcoming Federal Reserve’s decisions.
