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Bitcoin’s rally from under $65,000 to over $81,000 faced its first major macro setback after Fed Chair Kevin Warsh delivered a hawkish message at Jackson Hole on Friday. The bigger question now is whether potentially higher rates and rising Treasury yields can derail the impressive market recovery.<\/p>\n
Although BTC remained relatively stable during the speech, it dumped by $3,000 in hours after its conclusion, slipping<\/a> below $77,000 for the first time in almost a week. The sell-off extended to essentially all other financial markets, including stocks, precious metals, and other risk-sensitive assets.<\/p>\n Warsh didn’t say directly that the Fed is seriously contemplating hiking the rates, but he didn’t have to. His message was quite clear: inflation remains too high, the US economy is still strong, and the Federal Reserve cannot simply declare victory. Its preferred PCE inflation gauge currently stands at 3.7% YoY, while its six-month annualized rate is even higher at 4.1%. Both remain far above the central bank’s target.<\/p>\n He emphasized that the Fed’s 2% inflation objective is “firm and fixed” and argued that price stability won’t simply restore itself without additional actions from the central bank.<\/p>\n He also dismissed some of the most promising inflation readings this summer, including the June numbers<\/a>, saying they had not convinced him and his colleagues that the underlying trend had improved significantly. Until the Fed reassures that inflation is moving toward 2% “clearly and at sufficient speed,” policymakers will continue to “have work to do,” he added.<\/p>\n Traders had assigned a one-third probability to a rate increase in September before the speech, but these odds jumped toward 60% after its conclusion, according to market pricing cited<\/a> by Reuters. US Treasury yields climbed again, while the dollar strengthened sharply after its decline last week.<\/p>\n That’s essentially the exact opposite of the macro environment that helped BTC explode higher 10 days ago. Perhaps that’s why the asset went from a then-peak of over $80,000 to under $77,000 in a few hours, dragging most altcoins with it.<\/p>\n Warsh also pointed to business investments growing at roughly 9% per year, the S&P 500 surging by 20%, while unemployment remained at around 4% and credit conditions were relatively easy. In other words, the economy isn’t currently giving the central bank an obvious reason to tolerate elevated inflation.<\/p>\n In general, higher expected policy rates push Treasury yields upward, which increases the return investors can obtain from the assets that are considered much safer. A more hawkish Fed also tends to support the dollar and tighten broader financial conditions. History shows that such an environment is not ideal for BTC and more speculative altcoins.<\/p>\n Treasury Secretary Scott Bessent’s recent bond-market intervention<\/a>, which contributed to BTC’s major rally, helped push long-term yields lower, at least in the short term. However, Warsh reminded investors that the Fed’s mandate is quite different.<\/p>\n The Treasury might want to reduce borrowing costs and improve market liquidity, but the country’s central bank still has to deal with inflation running above its target.<\/p>\n This means that markets are still split between two powerful forces: Treasury support for financial conditions and a Fed that may need to keep monetary policy tighter than investors expected.<\/p>\n The post Why Bitcoin Crashed After Warsh\u2019s Jackson Hole Speech – and What Happens Next<\/a> appeared first on CryptoPotato<\/a>.<\/p>\n\nSo, What Really Happened?<\/h2>\n
Rate-Hike Odds Rise, BTC Drops<\/h2>\n
Treasury and Fed<\/h2>\n
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