Coinbase: The current market situation can benefit cryptocurrencies
Employees of the American cryptocurrency exchange Coinbase presented an analytical report on the situation in the cryptocurrency market. Experts are confident that in the long term, the position of digital assets will strengthen.
The essence of the Coinbase review is as follows: experts say so the decisive role in the current conditions will be played by the actions of the US central banking system. Exchange representatives are considering three scenarios:
Analysts dismiss the fact that the rate in today's conditions can either increase by 50 basis points or decrease. Regardless of which of the three scenarios is chosen, the cryptocurrency will still win. This is true? Let's take a closer look at all the options.
Stop increasing interest rates
The Fed's rate hike was carried out to curb inflation, caused, among other things, by the Fed's actions during the coronavirus pandemic and the launch of the "printing press for the dollar." Damping is achieved with varying degrees of success. Of course, there are certain results. In January 2023, inflation in the United States fell to 6,4%, in February to 6%. But the Fed says the goal is to keep prices within 2%. So far, US regulators have not come close to this. Therefore, it is unlikely that we will see a complete halt in interest rate increases. This would have been possible if the banking collapse had been on a larger scale. But it looks like the worst is behind us.
Let's assume there has been an increase. How will this affect cryptocurrencies? If interest rates are not raised, bank loans will cease to rise in price. If so, Americans should be more interested in borrowing. In fact, loans will act as relatively cheap money. And they, in turn, can be invested in cryptocurrency. We have to agree with the conclusions of Coinbase: in this case, we will actually get an increase in the cost of bitcoin and altcoins.
Slight rate increase followed by a pause
This is a more realistic option than the first one. All for the same reasons. Inflation is still high, to curb it, the Fed must raise interest rates. A 25 basis point gain could help smooth things out as public discontent grows. The head of the Fed was already interested in rising unemployment, and then also in banks.
In this scenario, theoretically, we again get the situation described in the first case. Only now there will be a certain delay in time, since at the moment the rate, albeit a little, will rise.
Slowing rate growth with its further rise
According to Coinbase experts, this is the most likely option. Why? The Fed, according to crypto exchange analysts, is confident that it has already dealt with the banking crisis and stopped the wave of discontent. In this regard, it is advisable to somewhat reduce the pace of interest rate increases in order to consolidate the result. On the other hand, nobody canceled inflation, and it is necessary to raise interest rates. After everything stabilizes, public outcry and discontent subside, it will be possible to continue to raise the rate.
Will the cryptocurrency grow in this case? Here are already possible different options. If the banking crisis subsides and interest rates continue to rise, where will people get their money from? Expensive loans will somehow be taken with less zeal. Another question is that it is worth considering interest in different cryptocurrencies separately.
For example, Bitcoin is scheduled to have a halving in 2024. The reward for the found block will be halved, the supply will decrease, which means that the price should increase. Sounds reasonable. On the other hand, we can take a project like Solana where emissions are unlimited. Whether investors will be just as willing to invest in it - time will tell.
Let's also look at options that Coinbase economists dismiss as unrealistic or highly unlikely.
Rate cut
It's hard to argue with Coinbase specialists here. The Fed will proceed from the situation with inflation, and it is high. Banking problems are sporadic rather than systematic. So the likelihood of such a scenario is very small.
For cryptocurrencies, by the way, this will also be an acceptable option, since before the collapse of the bank and the risk of a recession with the “active printing press”, people quite willingly invested in high-risk assets, including in order to protect their savings from depreciation.
0,5% rate increase
We could see a 50 basis point upside option if there were no problems with Silvergate Bank, Silicon Valley Bank and Signature Bank. In today's environment, the Fed should probably reassure investors by softening the rhetoric and raise interest rates again. In general, under the current conditions, such a scenario is less likely than in early March. But still more realistic than lowering the interest rate.
The more expensive the loan, the worse for digital assets. For individuals, the fear of losing their savings will take precedence over the desire to earn millions of dollars. However, this can be asserted only before the onset of a recession or a new serious economic crisis. Then the cryptocurrency can become a safe haven for assets during a period of instability in the economy.
Hack and predictor Aviator
The opinion of Coinbase specialists looks quite reasonable against the backdrop of the banking crisis in the US and the actions of the Fed. At the same time, representatives of the exchange make the most thorough forecast in order to take into account the entire range of scenarios and not miss all possible risks.
This material and the information contained therein do not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinion of the author, analytical portals and experts.
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