Inflation and the Fed Are Keeping the Crypto Market in Limbo


Crypto Market Musings

It appears like the crypto markets are warming up. As I write this, bitcoin is trading above $30,000. Ethereum is trading around $2,000. Even Solana has managed to make big gains. It’s up almost 20% over the past seven days.

Most of Ethereum’s gains are being driven by this week’s successful Shanghai update. The update, which was accomplished Wednesday, allows individuals who have staked ETH to withdraw their stakes and claim any gains or rewards. The hope is now that staked ETH will be withdrawn, more people will take part in the Ethereum ecosystem. Early returns suggest the network is holding up well. So now we’ve to attend and see whether adoption increases as expected.

But until we get a greater handle on what’s happening with inflation, rates of interest, recessionary concerns, and potential regulatory actions, it’s hard to find out whether that is a brief thaw or the start of a significant leg up. 

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What Vin Is Considering About

The Federal Reserve is in a bind of its own making. And it has the potential to wreck the economy this yr. 

Inflation rates are coming down. But they’re not coming down quickly enough. In March, the Consumer Price Index increased by 5%. That’s the bottom inflation rate since June 2021. And in comparison with February’s 6% inflation rate, March’s inflation data looks downright rosy. But for those who dig beneath the surface (as we did last yr with shelter inflation before the mainstream media was reporting it), you’ll discover a myriad of problems. Prices were soaring last March. So a 5% increase from last March means prices are up rather a lot. More importantly, core inflation — which excludes food and gas prices because they’re extremely volatile — was up 5.5% in comparison with last yr. Which means core inflation is outpacing inflation. And it’s going to take rather a lot greater than hope and a slowing economy to bring inflation all the way down to its goal level of two%.

Ideally, the Fed would proceed climbing rates until it was certain that inflation was not only headed in the correct direction, but in addition falling at a meaningful rate. However the Fed can’t try this due to the banking crisis.

Banks are struggling partly because they did a terrible job of managing the Fed’s rate hikes to fight inflation. And now the Fed staff believes the banking crisis will trigger a “mild” recession.

“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection on the time of the March meeting included a light recession starting later this yr, with a recovery over the next two years,” read the minutes from the Fed’s March meeting.

I think if the Fed hikes rates on the pace it must with a view to get inflation under control, the Fed funds goal range will likely be closer to six% as an alternative of the present 4.75% to five% range. But climbing rates that prime could worsen the banking crisis and deepen the recession. So the Fed won’t try this. As a substitute, the Fed will likely proceed to adopt smaller rate hikes that look good, but amount to simply wishing the issue will go away by itself.

Until inflation is fully under control, it’s hard to examine this crypto market thaw turning into the start of a recent bull market. The following few months will reveal much about where the market is headed next.

And Finally…

I grew up playing Super Mario Bros. It was an addictive video game. I played it so often that I could beat the sport without using cheat codes. But as much as I loved Super Mario Bros., it had thin characters and no plot. The enjoyment in playing Super Mario Bros. got here from gameplay and catchy music, not storytelling.

So imagine my surprise after I discovered “The Super Mario Bros. Movie” killed it on the box office. It did $204.6 million domestically and $377 million globally on the box office in its opening weekend. A part of me desires to see how they took a video game with no depth and turned it right into a story. A part of me shudders on the considered Super Mario Bros. becoming a movie. I haven’t decided whether I’m going to look at it yet. Be at liberty to let me know what you think I should do on Twitter (@vinistic).


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