What if the Fed can’t stop inflation? This is when the Bitcoin bear market could reverse

(Kitco News) Even the Federal Reserve admits it can’t lower food or gas prices just by raising prices. And if it fails, a reversal of the price rally may not be far off, according to Leiden co-founder and CSO Mauricio Di Bartolomeo, who sees the bitcoin bear market reversing if it does.

Inflation is on the rise, and the only thing the Fed can do to control is destroy consumer purchasing power by tightening financial conditions, Di Bartolomeo told Kitco News.

“And that’s exactly what they do. The idea is that having fewer of us buy things creates competition among retailers. That puts a little bit of a lid on inflation. This is a concept that has been tried and tested in the past,” said the co-founder of the crypto lender in Canada.

However, this is a far cry from the entire inflation narrative. “We are in an active struggle that is disrupting oil production capacity globally. So the Fed can raise rates as it wants. But it won’t be able to stop oil from going up until they deal with the problems in Russia,” Di Bartolomeo said. He pointed out.

And ever since the Fed started raising interest rates, the markets have been crashing, with cryptocurrencies, stocks, and even real estate starting to suffer. The signs point to stagnation.

“You’re starting to see a strain of layoffs. Credit card debt is increasing in the United States, savings rates are going down. So, basically, all the impact of COVID that has led to increased savings and fully paid loans has been reversed,” Di Bartolomeo noted.

There may come a time this year when the Federal Reserve will raise interest rates “to a wall” as inflation continues to rise due to external factors.

“Gasoline filters for all the other commodities. Everything costs more when oil costs more. Since they can’t stop that by raising interest rates, it will be difficult for the Fed to put a lid on inflation,” Di Bartolomeo said. “The Fed probably won’t be able to stop food inflation and gasoline inflation. What can it do?”

Bitcoin look

This is where Di Bartolomeo gets most excited about Bitcoin’s long-term outlook. “The only other way to fix that is either to put a cap on the price of fuel, or a government subsidy for the price of fuel, or a government subsidy for certain food products to contain inflation,” he said.

This type of solution is often practiced in countries that have problems with hyperinflation. The United States may have to adopt some of these practices to please the people before the mid-term elections in November 2022.

“This is nothing new,” he said. “I grew up with subsidies for fuel and food all my life in Venezuela.” “And when the Fed realizes it can’t do anything about inflation, the United States may start subsidizing some of these products.”

The Fed may also have to reverse some of its interest rate hikes to get the economy moving again. “There is a good chance that this will happen before the November midterm elections because no one wants to get into an election in an angry population,” Di Bartolomeo said.

He added that if these two things happen, the outlook for Bitcoin will be positive. This could represent a strong reversal of the bear market, as Bitcoin is currently trading 69% below the November peak at $69,000.

The market was trying to put the Fed into a corner with a dramatic sell-off in response to the Fed’s hawkish stance. If it works, things will turn a turning point for all asset prices.

“From my experience about how closely economic cycles correlate with political ones, I think that should happen sometime before November. In terms of price, I wouldn’t be surprised if Bitcoin closed the year higher than we are now,” said Di Bartolomeo. “However, I don’t have a clear picture of how much more negativity we have until that happens.”

Also, over time, Di Bartolomeo sees the bitcoin trading pattern more closely aligned with gold than with stocks.

“Bitcoin will eventually decouple from risk assets. It is already happening. Increasingly, Bitcoin will start trading closer to the NASDAQ, then closer to the S&P, and eventually, it will start trading nearer to gold, which is the world’s reserve asset. It will be an incremental progression. , but I think he’s already breaking up.”

And despite the massive selloff that briefly brought the world’s largest cryptocurrency down to $17,000 last weekend, inflation-hedge properties are part of Bitcoin’s arsenal.

“If you look at the price of Bitcoin before the pandemic and you look at the price of Bitcoin today. And compare that to the price of gold before the pandemic and the price of gold today. I would argue that Bitcoin protected you and then some for gold,” said Di Bartolomeo. “What happens is that people are looking at the timeframe from November to now. The printing started in 2019. So you have to look at how Bitcoin is doing starting in 2019.”

Di Bartolomeo also sees the current price of Bitcoin, which is around $21,000, as a strong entry point for people with medium to long-term investment timeframes and appropriate risk tolerance.

“While the past six months have been volatile, Bitcoin continues to act as an important store of value even in very poor market conditions, and we have learned from the recent fallout that not all cryptocurrencies, like not all cryptocurrency lenders, are equal,” he said.

Comprehensive regulation and accreditation

Like many in the crypto industry, Di Bartolomeo is encouraged by the regulatory push being seen coming from Washington with the Lummis-Gillibrand crypto bill.

“When everyone is making money, no one is really worried about regulation because everyone is doing so well. But when things go wrong people start wanting to organize,” he said. “In the same way it is now with inflation. In this short moment, the US electorate wants the Fed to raise interest rates. Likewise, politicians feel that if people don’t understand the point of regulation now, they won’t get to do these things constructively. on recent events.

The crypto community is beginning to understand that the lack of regulation is preventing many people from entering the crypto space, which is why regulation will help adoption.

“Lending companies like us have to compete with some of the DeFi protocols that are not held to the same standards that we maintain in our operations. We are there telling you exactly what the risks are, and how to do things, while this other platform just offers you a better price, and most people They don’t want to read the minute details.” “This is a challenge. And companies that are good players that organize themselves from day one are waiting for it.”

Leiden provides financial services to people who own bitcoin and digital assets. They were the first to announce a Bitcoin mortgage product.

“What our product does is that it takes Bitcoin as collateral and allows customers to buy a home of equal value. We partnered with a brokerage firm in Ontario, Canada, to sell the product. We are the guarantors and providers of mortgage services,” said Di Bartolomeo. “Ledn uses only Bitcoin and USDC, does not engage in DeFi protocols with client assets to generate revenue, and only engages with institutions that follow a rigorous due diligence process.”

Di Bartolomeo spoke to Kitco News on the sidelines of the 2022 Consensus Conference held in Austin, Texas, June 9-12. He also contributed an additional comment after the crash in the crypto space after the conference.

Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.

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