Dec 15, 2023

The U.S. Federal Reserve signaled on Wednesday that easier monetary policy is likely in store for 2024.

Video transcript

Bitcoin is, it's gonna end this week about 2% lower. Uh You know, that's not considered that much in crypto, of course, but here we are, we're looking at us Federal Reserve keeping its benchmark fed funds rate, uh staying the range relatively steady uh that they announced on Wednesday. Joining us now to discuss the crypto markets is Oanda senior market analyst, Craig Earlham. Welcome Craig. Thanks for having me. I'm glad to see you here. So of course, uh we, we're seeing not just the Federal Reserve keep rate steady, also the Bank of England, ECB European Central Bank. Um What, what do you make of all of that and what it tells us not only about uh the future of inflation and fighting inflation, but also what it means for risk, assets, particularly crypto. So it was interesting. The fed got us off to a fantastic start from a brisk asset perspective. They, they came out on Wednesday, they held we rate steady. That's almost irrelevant at this point because all anyone is interested in is what's to come next rather than what's happening now. No one expected a rate cut or a rate hike at either of these meetings. Uh, it's about what's coming next. Uh, and the markets at the time were pricing in four or five rate cuts next year. And the, the, the talk on the street was, are we being too bullish here? Are we being too aggressive? Is this too much optimism? Are we doing that usual thing where we get ahead of ourselves? Any reason, any justification to, to, to kind of buy stocks, to buy risk assets, to buy Bitcoin. Uh And uh those questions were being asked in the last week or so. And then the fed came out and rather than come out and say, well, we'll see what happens or play the kind of steady as she goes cards, they came out three rate cuts next year is what we're looking at and the markets exploded, we saw uh risk assets performing really well. Uh And then markets did what they do best. They decided to push it further. So they started pricing in six rate cuts next year. Uh and the, the other central banks or the markets, uh looking at other central banks followed suit. And I think they put other central banks, namely the Bank of England and the ECB in a difficult position because suddenly if they come out and do something similar to the fed, the markets can just get carried away again. So rather than get the Dovish message that we got from the Federal Reserve on Wednesday, we got a more steady message from the Bank of England. We didn't have to get too much from them. Uh, no new forecast, no press conference. So the, the pressure wasn't really on and then we got a bit of a hawkish pushback from Christine Lagarde and the ECB. And what did Marcus do? They completely ignored her. Uh, and they continued to price in six rates from the bank from the European Central Bank next. Yeah, it really has been quite a fascinating week and, uh, kind of settles up now for the end of the year in 2024 but perhaps not on the back of all of that because like I say, it's been uh an exhausting week. Um, on the back of all that, I'm not surprised to see maybe some more subdued trading today because a, I think everyone's exhausted. Maybe some people at Christmas parties last night. And I think also, uh, we've had a lot of information to take on board and it's been quite an interesting couple of weeks all in all. I, when I look at the price of Bitcoin though, over the past couple of weeks, we, we saw a peak up to 45 and then sell off. And some people attributed to, uh at least the run up to both the idea that the fed will take a more Dovish stance and also the idea of an ETF coming to market sometime soon. Yet we have this sell off since 45 we're now down to 42 and change. Uh I, I, is I, is that the correct assessment that these macroeconomic aspects, uh, to Bitcoin's trading had such an effect as to bring down the price or move the price where it is? It doesn't seem to quite make sense and, or, and, and are people perhaps overplay or overestimating the role of an ETF? In other words, are there any other factors besides either the ETF or the uh interest rate situation that could have moved Bitcoin's price to where it is currently? I think that's a really good question. Um I mean, I always say with uh with things like this is there's primary drivers and then the supporting factors and uh when there's not a lot going on in uh especially a kind of the headline uh arena uh in the, in the crypto world, then people can focus a lot more on what's happening with interest rates and risk appetites, especially over the last uh couple of years. But I think that's been more of a supportive factor at this point because I do think the ETF is a, is a massive driver. It's taking a long time. But I do think it's the the dominant driver of why there's a lot more optimism in uh the crypto space. Uh whether it's gonna be the game changer, we all want it to be. I, I'm, I'm not so sure it, it's helpful. It's a step in the right direction uh as the futures contract was before that and so on and so forth. Um And if I remember rightly, the run up to the futures launch and the, the, the, the uh the, the approval of that, we, we saw a lot, uh we saw strong rallies, we saw a lot of optimism, but the moment it was announced, we very much so by the rumor seller fact scenario, there's every chance that we get the similar thing with the ETF, we've seen a lot of optimism, really strong run up to that, perhaps we'll get something similar. Um And I think as, as Bitcoin and uh other cryptos become more mature, I do think this kind of trading is normal. If you look at any other asset class, things don't move in a straight line, we can rally 10% we can fall 5% we can rally another 10%. We can fall five percent that there's, there's nothing unusual about that and I don't see anything unusual about what we're seeing in, in Bitcoin right now. I just see a lot of euphoria uh over the ETF contract and then we'll move on to the next thing after that, when that ultimately uh is approved and I do think it will be approved. I think it always helps when we're in an environment where people want to take more risk. Um like it or loathe it. Bitcoin is a risky asset. Uh, I don't think anyone, um, should be in any two minds about that. Well, at least as far as I'm concerned anyway, but there's nothing wrong with that. There's lots of risky assets out there. Uh, and when risk assets are performing well, it's not surprising to see Bitcoin performing well. Uh, at the same time we need risk appetite to be strong. And an environment where we're looking at interest rates falling in quite aggressively over the next couple of years is more beneficial for uh risky assets because people's risk, appetite improves in a way that in the last 18 months, interest rates rising and no one knowing how far naturally undermines risk. There's a reason why the dow this week hit a new all time high for the first time in two years. Craig tell us a little bit more about that. How will monetary policy continue to impact the crypto markets as we move into 2024? Well, I think one of the most overused phrases is uh markets hate uncertainty, but it's, it's so true. So it doesn't matter how many times you hear it, it doesn't make it less relevant. And one thing that we've had over the last two years is enormous uncertainty. We've had uncertainty over inflation. We've had uncertainty over the aftermath of the pandemic, uncertainty over interest rates, the water in you, Ukraine uh energy prices. Uh There's been uncertainty around every corner and the markets don't like that. We're see, we're moving into an environment which looks more clear cut. Now we're moving into an environment with low where we could potentially see low and steady inflation into an environment where interest rates are falling rather than rising. And we don't know where to that is all much better uh if you're an investor because you know what you're effectively benchmarking against, you know what uh what the situation is like, you, you know what the economic prospects are because again, rising interest rates is not just bad for investors, it's not just bad for markets, but it's bad for business. It's bad for the economy. Uh So you don't know how far things are gonna have to be pushed and how far we're gonna have to tip into recession or, or something much worse. Now, it looks as though we're achieving a soft landing, which is borderline, miraculous considering how aggressively interest rates have risen and we're facing interest rate, uh cuts going into 2024 things will look a lot more promising now. Uh And therefore investors may be willing to take a little bit more risk in a way that they were two years ago. But for the last uh for the last 24 months have been less inclined to do so, maybe the last six months or so, a little bit more more. So I think the, the kind of all the A I uh uh euphoria earlier this year really did help things uh uh kind of risk, have to take it back on its feet. Uh But it's taken a bit more time over the course of the year to really catch up. But uh I think we are now going into a more stable environment and investors like stability with that. Oh, well, I actually with, with that stability. Do you see any interest uh going into alt coins as well as, as a, as a way to get a little bit more yield, people looking there or have people sort of cooled off a little bit on the alt, we, we saw a little bit of a run up uh before, but when I talk to traders, they say there's something weird about it. Yeah, I mean, I think, well, the, the thing we have, right is that uh I think investors know that there's uh Bitcoin has been around Bitcoin has more of a track record now. Um all coins, uh you can imagine people have been burned during bear markets and quite aggressive bear markets. Bitcoin fell what 75% from its uh from its all time high. Uh I in the last couple of years and is now bouncing back strongly, but people got really burned by all coins and it takes some time to uh to kind of repair the damage. But the more that we see Bitcoin gain, the higher the price that we see for Bitcoin, the more people's attention is naturally gonna be turned to all coins because there's gonna be a lot more focus then on if Bitcoin's up 50% in X amount a month, then this coin is up 100% this coins up 500% and interest, uh, interest starts to appear back in the old coin market. I do think we will see more and more interest in the old coin market going into 2024 if we get that ETF approved. Uh uh and if Bitcoin continues to perform well, if Bitcoin hits a new all time high, I have no doubt interest will return to the old coin market. It's uh uh but if we, again, I think in that scenario, we need, we need uh an increasingly stable environment and uh and, and if we continue to see our next, but we will then, but then in my view, at least, I think we will see more interest in the old coin market, no doubt. All right, Craig, we're gonna have to leave it there. Lawrence saved you from my predictions question. You ask, you know what three years predictions for 2024 who want to do it? I'm asking it for you. What are your predictions for? 2024? Wow. Uh, a nice easy question, uh my predictions for 2024. Um I mean, I, I hate to say the obvious thing. II, I think interest rates will come down. I think we will. Uh I, I do think central banks will be a lot more active in that direction. I think uh um uh I mean, I haven't really given this question that we thought of the second. Uh But yeah, I, I think we think we will see a more stable environment. I do think we'll see more risk appetite. Uh And I think we'll, I think that will benefit ri risk, risk assets ultimately. Uh So that's my prediction very much off the top of my head. Uh But uh yeah, iii I do think we're gonna, I think we're going for, I think we're 2024 is gonna be the uh a very good year. Shall we put it that way? Price me Bitcoin next year, 11 year from now. Where is it gonna be? I mean, honestly, give me a dart and a dartboard and I'll happily throw it. But I I it could be anything from 100,000 to 10,000. Honestly, it's uh pricing Bitcoin a year from now is, uh, is an impossible task and it always has been like, that's not just now pick a price and it'll be there, get there eventually. All right, Craig, we're going to leave it there. Thanks so much for joining us this morning and we hope you have a happy New Year. Thank you. You too. That was Oanda senior market analyst. Craig Earle

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