Susan Collins, head of the Boston Federal Reserve, used her May 7 appearance on Bloomberg Channel’s “Big Take” to deliver a message that cryptocurrency investors probably didn’t want to hear: Interest rates aren’t going lower.
Collins pointed to energy shocks from the Iranian conflict as a major force keeping inflation above the Fed’s 2% target. Her recipe was straightforward. Keep interest rates constant. No cuts in sight.
The inflation problem will never end
Collins warned that unrest caused by the conflict in Iran could lead to inflation estimates tripling compared to just 30 days ago.
Fed Chair Jerome Powell cited similar inflation risks associated with the Iranian conflict in his April 21 and May 8 publications, reinforcing the Fed’s broader narrative that caution, not accommodation, is the order of the day.
What this means for Bitcoin and cryptocurrencies
Bitcoin rose 2.6% to $80,139 on May 4 as markets began pricing in stagflation risks due to extended supply disruptions.
Analysts are now predicting a potential 25-30% decline in Bitcoin if inflation continues to rise. This would put Bitcoin somewhere in the low $56,000 to $60,000 range from current levels. During the 2022 tightening cycle, Bitcoin fell from $69,000 to below $16,000 as the Fed raised interest rates.
The US Treasury seized $500 million in crypto assets linked to Iran’s Islamic Revolutionary Guard Corps in early May as part of intensified sanctions. This confiscation contributed to the decline in the value of the Iranian currency by 60-70%.
Global markets are holding up, but for how long?
Collins acknowledged that despite these pressures, global markets have shown resilience. Strong corporate earnings and continued momentum in AI technology provide a floor under stocks. Analysts point out that AI-driven sectors within the cryptocurrency market may enjoy clear advantages despite macroeconomic pressures, while Bitcoin and other major tokens face the risk of higher rates for a longer period.
