What an eventful evening we had once again! The FOMC meeting took place, and as expected, the Fed increased its funding rates by 0.25%. I had thought that the rate hike would be 0.5%, but the collapse of Silicon Valley Bank, First Republic Bank, and Credit Suisse (which, while not bankrupt, essentially collapsed and was forced to be sold to UBS) likely had an impact.
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Many, especially those in the crypto community, expected the Fed to pause its rate hikes and maybe even decrease rates in the next FOMC meeting. However, inflation is still present and, from what I can see, is not going away. We might even see an increase, as happened in the UK. Of course, the situation in the UK is unique due to Brexit and their internal political issues, but it's still not a good sign. In my opinion, the reason for not pausing is that the Fed also believes that inflation is sticking around.
But if they believe that inflation is sticky, why not go for a higher interest rate hike? I have two scenarios for that. First, Powell is under pressure to not go too hard and cause an even bigger shock to the markets, especially to the banks. He will likely try to give them time to adjust and probably find different ways to provide them with money. Second, while they believe that inflation is sticky, they also arrogantly believe that they have tamed the beast. By hiking rates by 0.25% (and a total of 5%), they believe they have achieved their goal they assume that the next CPI will be less than 6%, so inflation is sticky but tamed.
Ultimately, I believe that inflation must be tamed at all costs. Banks will collapse regardless, and consumer debt is constantly increasing, exposing banks to bad debt. Going softer on inflation risks getting out of control again while banks collapse.
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Two interesting things happened after the FOMC meeting. The first was the SEC filing a complaint charging Justin Sun with securities law violations linked to his management of three crypto companies. Although I would have loved to see him go to prison, it's likely that everything will be settled with a fine as is often the case in the US.
The second was that the SEC sent a Wells notice to Coinbase for violations of federal securities laws. Coinbase is a publicly traded company listed on the stock market and the most heavily regulated crypto exchange, so I find it a bit odd that the SEC took this action. However, it does suggest that the SEC is on a warpath against crypto. In the end, I believe that Coinbase will just pay a big fine and stop staking, as Kraken did.
On the crypto market front, I wanted to wait a day before writing this post to see how the crypto markets and Bitcoin would react to the FUD surrounding the increasing rates and Coinbase. We saw a big drop in the first couple of hours, but then Bitcoin rose again to test Wednesday's top, which was the highest in 9 months. This is a sign of strength for Bitcoin, and even if we stay at this price for some time, it shows me that even with FUD or bad news, the price can't go lower. If it can't go lower, the only path forward is up.
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