Major cryptocurrencies recovered over the past 24 hours and broader equity markets strengthened even as two U.S. Federal Reserve policymakers called for higher rate increases in the coming months.
XRP rose more than 5%, leading gains as bitcoin broke $22,000 in early Asian hours on Friday. Market capitalization almost touched the $1 trillion mark, reaching levels last seen in early June before systemic risks from within the crypto market and a bleak macroeconomic outlook led to steep declines.
Some analysts, however, remained neutral about prospects of a longer-term bitcoin recovery considering the sentiment in broader equity markets.
“The only bitcoin bottom signal for me is persistent data showing us that inflation is convincingly inflecting down,” said Marcus Sotiriou, an analyst at crypto broker GlobalBlock. “This should result in the Federal Reserve becoming less aggressive with their monetary policy, and therefore provide confidence that the liquidity crisis in the crypto market is over.”
Policymakers back higher rate hikes
However, in separate comments on Thursday, Fed Governor Christopher Waller and St. Louis Fed President James Bullard backed higher rate increases in the coming months even at the cost of slower growth.
Higher rates would increase the chances of a recession as consumers spend less, potentially hurting the prices of equities as companies miss revenue targets.
That would likely feed through to bitcoin and other cryptocurrencies. Crypto assets have tracked growth and declines in the broader equity markets in recent months.
“We need to move to a much more restrictive setting in terms of interest rates and policy, and we need to do that as quickly as possible,” Waller said Thursday during a webcast hosted by the National Association for Business Economics.
“I am definitely in support of doing another 75-basis-point hike in July, probably 50 in September,” Waller said, adding that a 25-basis-point hike could then be in the cards after that. Concerns that the Fed would tip the U.S. into a recession were overblown, he said, and added that he saw a “good shot” of the economy having a soft landing.
“I think it would make a lot of sense to go with the 75 at this juncture,” Bullard said. “I’ve advocated and continue to advocate getting to 3.5% this year. Then we can see where we are and see how inflation’s developing at that point.”
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