The prices of Bitcoin and cryptocurrencies have soared since the election of new US President Donald Trump.who prepares a Bitcoin price change after predicting that Bitcoin could eclipse gold.
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The price of bitcoin, however, fell after surpassing $100,000 per bitcoin. sparking fears of an impending crypto market crash.
NOW, as traders scramble to stay ahead of the Federal Reserveanalysts have warned of a possible Fed crisis that could trigger a new surge in Bitcoin prices.
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Fears of a return of inflation in 2025 raise questions about the possibility of stagflation. … (+)
“Current measures of inflation, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI), are significantly below previous peaks over the past 40 years. However, they remain “stubborn” or “sticky,” resisting a return to central bank policies. preferred target of 2%,” Chris Kuiper, director of research for Fidelity Digital Assets, wrote in a statement. report who asked: “Why is no one talking about stagflation? » – defined as a combination of low economic growth and persistently high inflation.
“Combine that with persistently large and structural budget deficits – as well as a Fed that has now embarked on a rate-cutting cycle – and it’s not hard to imagine inflation returning in a second wave “If this trend continues and the outcome is worse rather than a historically typical ‘soft landing’ and recession, it could quickly escalate into stagflation.”
US debt has soared in recent years, surpassing $34 trillion in early 2024, as Covid and lockdown stimulus measures contributed to massive government spending and sending inflation out of control in 2022 .
Inflation of more than 10% has forced the Federal Reserve to raise interest rates at a historic pace, pushing up interest payments on the debt and fueling fears of a “death spiral”.
Last year, Jamie Dimon, the influential chief executive of Wall Street giant JPMorgan said he would not rule out the emergence of a stagflation scenario, even if inflation began to move away from its recent highs, while last month, tech investor and podcaster Chamath Palihapitiya called stagflation is one of its “keywords” for 2025.
Earlier this month, analysts at Kobeissi’s letter said they saw “more evidence of stagflation,” warning: “We have rising prices with a weakening labor market.” Stagflation is here.
The latest U.S. jobs figures on Friday showed hiring accelerated in December, beating expectations and putting immediate plans for further Fed interest rate cuts on ice after the president of the Fed, Jerome Powell, initiated a tapering cycle in September which continued with a further reduction in December.
“There are very real concerns about slower-than-expected interest rate cuts from the Federal Reserve and that could weigh on speculative assets like bitcoin. This is also fueled by stronger-than-expected U.S. economic data, including robust job postings and purchases from the PMI numbers,” James Toledano, chief operating officer at Unity Wallet, said in emailed comments. “This reinforces fears of persistent inflation which pushes rate expectations higher and therefore limits the liquidity of risk-oriented markets.”
Some have also warned that U.S. President-elect Donald Trump’s plans for massive tariffs and large-scale deportations of illegal immigrants could fuel further inflation.
“Also, we cannot forget that there was massive profit-taking after Bitcoin’s tremendous rally in 2024, driven by optimism surrounding Donald Trump’s pro-crypto stance,” Toledano said. “Now everyone is holding their breath waiting for Trump’s inauguration on January 20, when cryptocurrencies are expected to rise again. So this is indeed the slowdown before the storm. There is also a lot of uncertainty about the implementation of his administration’s policies, which could dampen investor enthusiasm as well.
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The price of Bitcoin has skyrocketed over the past year, with some continuing to issue bullish messages. … (+)
Traders are betting that the Fed will keep interest rates unchanged at its January meeting, according to the CME’s FedWatch tool. In December, the Fed forecast only two quarter-point rate cuts this year, down from four forecasts in September, citing the strength of the economy and persistent inflation.
“If the Fed cuts rates while inflation continues to rise, it risks creating a situation of rising prices and slowing growth, a combination that could lead to stagflation,” said Haider Rafique, director global marketing of the bitcoin and cryptocurrency exchange XBTO. sent comments via email following the Fed’s interest rate cut in December. “Such a scenario would pose a significant challenge to both traditional markets and the digital assets sector, as investor confidence could waver amid an uncertain economic backdrop.”
Next week’s next CPI report is expected to show inflation of 2.8% in December, up from 2.7% a month earlier, according to economists polled by Reuters.
“We believe that if the United States were to face a stagflation scenario, the performance of Bitcoin would depend on the fiscal and monetary policy response. If fiscal and monetary institutions chose to combat the “stag” part of the problem by increasing spending or using monetary tools, bitcoin could potentially perform well, although there is likely to be further lag.” , Kuiper wrote, highlighting gold’s performance during the stagflation period of the 1970s and early 1980s.