Richard Fetyko, CEO of altFINS:
Markets took a dive on Friday.
Not just BTC or crypto, almost all markets: tech stocks, Gold, bonds too.
That’s cause interest rates increased. And reason for that was the strong employment data (Non-Farm Payrolls or NFP) for month of May.
It can be a head scratcher: US economy is stronger than expected. More people are finding jobs, companies are hiring. Shouldn’t that be good for risk assets?
Welcome to the world of ‘sophisticated’ finance.
Wall Street interpreted the strong employment data as a signal that the Fed will not be in a position to cut interest rates.
In fact, markets now see a 78% chance of Fed rate hike by end of 2026!
Higher interest rates means stronger dollar and higher discount rates for future cash flows….which means lower present values of assets, especially long duration assets like tech stocks.
In translation, lower interest rates are good, higher interest rates are bad.
But herein lies the opportunity: what market got wrong
I personally do not believe that the new Fed Chair Warsh, who was picked by Trump to cut rates would let the Fed hike rates.
Of course, his hand could be forced if inflation gets out of hand, but I think the Fed will let inflation run hot because it's just temporary from oil price increases. OPEC is breaking up, US and Venezuela are increasing oil production, even Russia is allowed to export more now....so oil prices will be contained.
Then you've got the AI productivity gains, which will be deflationary.
I don't know when these deflationary forces will be recognized by the market but it'll happen at some point, probably by end of 2026.
Then BTC can rally again, and alts too. Meantime, some alts will do well nevertheless as certain narratives rise to the forefront (AI, etc.)
More likely scenario: goldilocks economy
What’s more likely, IMHO, is that the U.S. economy will grow steadily, even accelerate, reaching higher employment capacity without inflationary pressures.
Under that scenario, risk assets will do quite well.
Bitcoin is still a risk asset, not an inflation hedge
That means that BTC is very interest rate sensitive. Fed is in a driver seat.
Meanwhile, BTC is fighting for $60K support and it got extremely oversold. Last 7 times it was this oversold, it ended in the plus over the next 7 days, 1 month and 3 months (except 1 case). See our analysis here.
You can find these in our trade setups section.
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