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the US Federal Reserve (Fed) has “limited firepower” to raise interest rates due to high oil prices and a threat of recession — and this could lead to higher bitcoin (BTC) prices, the crypto research and investment firm CoinShares has said. Meanwhile, others also remain positive for the long-term, saying bitcoin’s network effects make it likely to succeed.
Writing in a piece published on the CoinShares blog on Thursday, James Butterfill, the company’s Head of Research, said that he believes current interest rate expectations are “already factored into the current Bitcoin price.”
“Bitcoin now has a well-established inverse correlation to the US dollar. This makes sense due to its emerging store of value characteristics, but it also makes it incredibly sensitive to interest rates,” Butterfill wrote.
He added that the price declines seen in bitcoin over the last 6 months can “by and large be explained as a direct result of an increasingly hawkish rhetoric from the Fed.”
The article further pointed out that bitcoin’s correlation to gold has declined over the course of 2021 and 2022, while the correlation with stocks – and in particular the more rate sensitive growth stocks – has risen “significantly.”
Still, there is a rising risk of recession in the US that the Fed must take into consideration, Butterfill argued. He said that some economic indicators, including wage growth and purchasing manager indices, have begun to “roll over.”
Additionally, Butterfill pointed to rising oil prices as “the most worrying indicator” for both the US and global economies. Sharp rises in demand and prices for oil have “almost always” been followed by economic recessions in the US, Butterfill warned.
Change in oil demand and recession periods in the US:
Lastly, Butterfill said that although he believes the Fed will continue to hike rates through the summer, the US central bank is likely to adopt “a softer outlook” on economic growth going forward, and argued that this will likely weaken the US dollar relative to other fiat currencies.
The article concluded that,
“[W]e believe Bitcoin is a good insurance policy in the face of this monetary policy mess.”
Long-term growth likely, despite recent volatility
Taking a slightly different and longer-term approach to bitcoin investing, Charlie Erith, CEO of the bitcoin- and gold-focused asset manager ByteTreesaid in an emailed commentary on Thursday that investors should see through the recent price declines in bitcoin.
Although recent volatility in bitcoin has made some investors worried about the asset’s ability to protect wealth, the key point is that bitcoin aims to be “a solid store of value” over the long-term, Erith wrote.
A reason for this, according to Erith, is that bitcoin is “a network effect asset,” where the value of the network increases as more users join the network.
Still, Erith made it clear that Bitcoin’s success is “by no means a certainty.” If the Bitcoin network starts to shrink, so will the appeal and value of the network.
“But long-term, indicators suggest that to be unlikely,” Erith said.
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