Bitcoin Traders Watch Fed Chair Warsh for Clues

• BTC-USD

Kevin Warsh marked his 100th day as Federal Reserve chair on Friday by doing what he’s made a habit of since taking the job: refusing to tell markets what comes next.

The crypto market reacted in kind by, well, not doing much of anything. Bitcoin is flat today after a record-breaking rally took it briefly above $80,000 this week, while the crypto market as a whole hovers around a $2.7 trillion market cap, down a slight 0.2% today.

In a keynote titled “In Our Time” at the Kansas City Fed’s Jackson Hole symposium, Warsh formally declared that forward guidance—the Fed’s practice, dating to the 2008 financial crisis, of hinting where interest rates are headed—has, in his words, “overstayed its welcome.” For two decades, Fed chairs have used this exact speech to signal their next move. Warsh used his to explain why he won’t.

He reasoned that when traders make moves based on Fed hints instead of raw economic data, everyone gets a distorted picture. Warsh called it a “hall-of-mirrors problem,” warning that the Fed and the market end up staring at each other’s expectations instead of reality.

“Market participants will always try to anticipate what we will do next,” he said “But we should not indulge a regime in which market participants are looking primarily to the Fed for their next trade”

Buried in the footnotes was the detail that will matter most to crypto traders. While arguing that central-bank and commercial-bank money both deserve more attention, Warsh cited his own 2022 essay written before he returned to the Fed. He told the room that “a quieter Fed, more purposeful in its communications, is better able to meet its objectives.”

While Warsh never directly mentioned crypto, his words and the actions of the Fed carry weight for the market. High rates and sticky inflation make borrowing expensive and bonds more attractive, pulling capital away from assets that pay no yield, like bitcoin. Lower rates, or even the expectation of them, send that capital the other way. Warsh refusing to signal which direction he’s leaning keeps traders guessing at exactly the moment Bitcoin needed clarity to extend its rally past $80,000.

The most traders got out of the Fed chair today were his comments regarding the central bank’s “predominant focus” on inflation, which is really just par for the course. The suggestion, though, that the Federal Reserve still has “work to do” to curb inflation was hawkish enough, it seems, for traders to briefly sell off Bitcoin, as the price of the cryptocurrency shed roughly $1,000 from its price just after the remarks before recovering almost immediately.

Source: finance.yahoo.com