The cryptocurrency exchange BitMEX outlined some possible scenarios that could unfold in the coming months for the cryptocurrency industry.
It believes the Federal Reserve will most probably cease its interest rate hikes by the end of the year, triggering a flow of funds into global capital markets and risk-off assets. Cryptocurrencies, such as bitcoin and ether, could benefit in such cases.
According to BitMEX, the US Federal Reserve will most likely slow the pace of interest rate hikes or completely halt them by the second half of 2023 and even begin decreasing them towards the year-end. Currently, the percentage stands at 4.75%, a figure last seen during the financial crash in 2008.
The company argued that such a policy amendment could fuel a market recovery and boost interest in the cryptocurrency sector as investors will likely seek exposure to riskier assets in search of greater returns.
“The pivot, when it comes, will help resume the flow of funds back into global capital markets and trigger a rally, including in crypto assets.”
CEO Stephan Lutz thinks central banks will have no other chance but abandon their aggressive rate hike strategy soon because otherwise, the policy could result in “a further decline in real economic activity.”
Most market participants see the Fed raising interest rates by 0.25% later this week. Some experts, like the “Bond King” Jeffrey Gundlach, believe this will be the last such move, while Anthony Scaramucci thinks the pivot will come when US inflation cools off to 4-5%.
Despite classifying the chances as minor, BitMEX said there is an existing risk that the Federal Reserve will continue lifting interest rates beyond 2023 on fears of potential stagflation.
It estimated that such a decision will halt the investor appetite for various asset classes, including cryptocurrencies, and will prompt a downturn in the industry:
“If stagflation does come to pass in 2023, it will dent business and consumer sentiment, hurting retail and institutional investor appetite for a range of asset classes, including crypto.”
BitMEX said such a “surprise scenario” could cause a shock drop of bitcoin’s price to as low as $5,000, while most investors could focus on “long-established safe heavens” like gold. Recall that the primary cryptocurrency has shown an impressive comeback after the devastating 2022, increasing its valuation to over $28,000 (a nearly 70% surge since January 1).
The research stated that possible stagflation is unlikely to hit the economy due to several indicators: the decreasing inflation in the US and China’s opening to international trade after the latest COVID-19 lockdown.
BitMEX maintained that 2023 might see multiple developments that could repair crypto’s legacy and turn it into a less risky asset class.
“Aided by the efforts of market and industry participants, legitimate use cases for the industry are multiplying.”
Realizing the broad interest and use cases of digital assets, watchdogs could join forces and establish an international regulatory framework that could give investors maximum protection while allowing the industry to thrive and innovate.
“Adding to this, interest in the world of decentralized finance is only set to grow as the industry emerges from the crisis with a roster of strong players with legitimate business models. This will serve to offer a range of relatively lower-risk investment options than in years past,” BitMEX added.
The company expects numerous countries from the Western world to hop on the cryptocurrency bandwagon one way or another. It also sees totalitarian nations which have previously banned the usage of digital assets, such as China, to continue developing CBDCs.
This could give the Chinese a chance to be part of the digital revolution. Russia, Thailand, Hong Kong, and many other nations have also displayed intentions to roll out a digitized version of their official currency.