The complexities of US monetary policy have been put under the microscope by Jordi Alexander, CIO of Selini Capital, who today offered an incisive analysis of the possible ripple effects these policies may have on the bitcoin and cryptocurrency market. By drawing correlations between traditional financial mechanisms and the nascent digital asset landscape, his commentary clarifies a number of complex market dynamics that every investor should be aware of.
At the heart of Alexander’s argument is his observation that the Federal Reserve’s approach to managing current economic conditions could be approaching a tipping point. As NewsBTC reported, there is growing concern in the bond market. Bonds with maturities greater than 10 years have seen a 46% drop from their highest value in March 2020. Additionally, 30-year bonds have fared even worse, with a 53% drop.
Alexander commented: “I haven’t expressed macroeconomic opinions in a while, but with things about to really start moving, it’s time. I spent months analyzing the end of American politics. The result I saw is now visible. Gradually at first… then suddenly the Fed will poop in its diapers. “
Why quantitative easing could return sooner rather than later
The analyst perceives recent changes in the bond market, especially with regard to long-term bonds, as a precursor to possible policy changes. To back this up, Alexander references Nick Timiraos of the Wall Street Journal, who recently highlighted a specific sentiment from Dallas Fed President Lorie Logan that is indicative of this shift.
Logan has begun to express reservations about the Federal Open Market Committee’s (FOMC) previous hawkish stance, largely due to recent increases in Treasury yields and term premiums. His concerns emphasize the tug-of-war between the need for restrictive financial conditions to reduce inflation and the current strength of the labor market and overall economic output.
Surprisingly, Logan believes that the reasons for the tightening of financial conditions, especially those related to recent increases in Treasury bond yields and term premiums, could reduce the need to increase the federal funds rate.
Commenting on this U-turn by the Federal Reserve’s Logan, Alexander maintains: “This is the Bat Signal I’ve been waiting for. What does it mean? Why is the president of the Dallas Fed in the main tweet doing a big 180 degree turn? Because they are starting to realize that they are losing control of the bond market!”
Expanding on the nuances of the bond market, Alexander emphasized the distinction between the front and back ends of the curve. He stated: “The front end of the curve, like Treasury bills and 2-year bonds, generally respond very well to the Fed’s rate guidance…But the Fed has never had such good control over the back, especially the 30-year bonds. .” Alexander’s analysis points to a slowdown in demand for these long-term bonds, suggesting a possible loss of market control by the Federal Reserve.
This evolving bond market scenario puts the Federal Reserve in a precarious situation. Delving deeper into this potential dilemma, Alexander asks: “What happens if they agree to stop raising rates or even initiate cuts, but the bond buyers still haven’t shown up?” Additionally, he speculated on a possible shift – the endgame – in the Fed’s approach: “Placed between a rock and a hard place, the Fed could be pushed toward yield curve control,” hinting at a reversal to quantitative easing (QE) policies.
Drawing a parallel with the Japanese financial scenario, Alexander prophesied: “The dollar could well be the victim of this political direction, much like the situation of the yen in Japan.” He then connected these macroeconomic shifts to the digital asset space and predicted: “Goodbye quantitative tightening, hello my old friend Mr. QE. The timeline is uncertain, but it’s time to start paying attention to term premiums, like the Dallas Fed!
bitcoin and crypto Could Make Massive Gains
Ultimately, QE is something that bitcoin and cryptocurrencies have benefited greatly from in the last bull market. Therefore, Alexander also predicts that “yes, your internet currencies (aka bitcoin and cryptocurrencies) could benefit.” Surprisingly, several analysts share this opinion.
BitMEX founder Arthur Hayes recently expressed a similar opinion, according to which the Federal Reserve will find itself in a bind sooner rather than later to reintroduce QE. Hayes predicts a bitcoin price of $750,000 in 2026.
But this perspective is not universally accepted. Coinbase’s Yuga.eth built on Austan Goolsbee’s confidence in the FOMC’s commitment to addressing inflation. To this, Alexander snapped: “Nothing about increasing debt helps inflation anyway. As I wrote at the beginning, the only way to do it right would be to raise taxes, especially corporate taxes.”
At the time of this publication, bitcoin was trading at $26,677.
Featured image from Shutterstock, chart from TradingView.com
