Last week’s key crypto events

Last week the stock market shed over 1.2 trillion dollars after fed chairman Jerome Powell made it clear that the central bank would continue aggressively raising interest rates to fight inflation during his speech at the annual Jackson Hole symposium.

Those of you who watched Jerome’s speech will know that it was abnormally short with Jerome getting straight to the point and specifying that the fed is prepared to cause a quote prolonged period of below trend growth to fight inflation. What’s even more terrifying is that Jerome admitted that the fed has no control over the supply side factors that are causing inflation and will therefore have to do excessive damage to the demand side of the equation to bring it down by raising interest rates.

Bringing demand down to bring it in line with supply as Jerome repeatedly stated on Friday would basically require another 2008 style financial crisis hence why the admission is so disturbing. To make things worse there are fears that the fed’s monetary policy won’t be enough to stop the inflationary forces of the fiscal policies that continue to be passed in the United States such as the recent student loan forgiveness program which arguably announced to another round of stimulus. If that wasn’t bad enough the fed is scheduled to accelerate its quantitative tightening come September which is literally later this week.

For context the last time the fed started reducing its balance sheet the stock market crashed by 20 percent in the months that followed. It’s not unreasonable to expect a similar situation this time around especially since a 20 decline would be consistent with the roughly 40 drop the crypto market needs to see to reach its bear market lows at least according to our calculations. Now even though the crypto market is likely headed lower in the medium term it’s quite possible that it will still see another recovery in the short term.

I say this because the scary shakeout we saw over the weekend was mostly due to leveraged traders getting liquidated. Now as painful as this was it wiped the crypto market clean of most of the speculation that’s been accumulating over the last couple of weeks and provided a more stable base from which the crypto market could move higher in the short term.