Organized Chaos

This week saw another round of interest rates hikes by central banks to try and control inflation. With all the talk of a potential pivot in monetary policy, interest rates continued their parabolic rise by 75 basis points in the UK, and the US.

Initially the Federal Reserve’s announcement of a 0.75% interest rate increase caused markets to jump because this was the rise they’d been expecting and had already priced in. However, in the subsequent press conference the tone was more hawkish which caused the markets to drop a little.

A similar situation occurred in the UK but the main difference was that the Bank of England’s tone was far harsher and more pessimistic than that of the Fed. It was announced that the UK was in a recession and had been for several months. The eventual recovery is not expected for at least another 18 months.

Despite pessimistic overtones the actual content of the explanations from central bankers came as no surprise to many economists. They have long been predicting the exact outcomes we witnessed this week and as far as they are concerned, everything is going exactly to plan.

Several months ago it was predicted that the US would enter into a shallow recession that wouldn’t last very long. The predictions for the UK were harsher due to two main factors — its lack of natural resources and the minor role of its currency in global transactions.

In the US’s favor is the fact that it has an abundance of natural resources that enable it to reduce its dependency on imports. Additionally since over 80% of global transactions have to be settled in US dollars its currency remains tremendously strong.

Some may wonder why there is so much volatility around interest rate decisions by central banks if the markets already know what’s going to happen. The reason is that no one makes money from stability in the markets. They’re designed to be volatile around any decision, even if it’s a foregone conclusion because some people will always bet on the least likely outcome.

The frustrating aspect of volatility in the main financial markets is the way that it always impacts cryptocurrency negatively. Because we’re still in the early days of crypto adoption every bit of turbulence in the main markets invariably ripples through crypto.

Every time this happens the mainstream media call it a cryptocrash and cite the volatility as a reason not to invest in the market. For many in the space this mischaracterization by the media is a source of frustration, especially because there are so many projects trying to bring benefit to society as a whole.

The good news is that economists are widely anticipating that the turning point for the markets will occur in the early part of 2023. The Federal Reserve is expected to begin its pivot around March or April which will help to gradually build confidence back into the markets during the lead up to summer.

They are expecting the second half of 2023 to be the time when the next growth phase will start to occur in the US, which coincides with the run up to the next Bitcoin halving. From November 2023 onwards Bitcoin should start its steady rise in value that signifies the start of the next major bull run. If everything goes to plan it means that growth in both the stock market and crypto market should be aligned.

However, as recent events in the UK have shown, the best laid plans of economists can be destroyed alarmingly quickly during times of political upheaval and uncertainty. Despite it being far from a done deal, at least there is light at the end of the tunnel that the bear market seems to be entering into its final phase.

While there will definitely be more heartache, uncertainty and volatility ahead, the fact that so many people are still active in crypto during the depths of this bear market gives great hope for the future. As the adage goes, time in the market is much better than trying to time the market.

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  • Source: Plato Data Intelligence: