Bitcoin prices rose slightly to a potential challenge of $86,000 in afternoon U.S. trading on Wednesday, but then quickly reversed as Federal Reserve Chairman Jerome Powell warned about the impact of President Trump’s tariff regime.
“The tariff increases announced to date are far larger than expected. Their economic impacts are likely to be similar, including higher inflation and slower economic growth,” Powell said in his speech.
In other words, stagflation – a period dating back to the 1970s when the United States experienced weak economic activity and double-digit inflation.
“We may find ourselves in a challenging position of tension between the dual mandate objectives,” Powell continued.
In the minutes after Powell’s speech, Bitcoin (BTC) prices fell by about 2.5% and are currently trading at $83,700, down 1.5% in the past 24 hours.
U.S. stocks tried to rebound from the opening drop, but also took a hit, with the Nasdaq falling 3.4% to an intraday low.
Powell also mentioned that as cryptocurrencies become increasingly mainstream, stablecoins need to establish a legal framework. He said that banking regulations around cryptocurrencies could be “partially relaxed.”
The U.S. Senate Banking Committee approved a bill in March to regulate stablecoin issuers, the first time the bill has been approved by the committee and an important step toward law in the U.S.
Federal Reserve’s hawkish stance puts pressure on cryptocurrencies and Bitcoin
Quinn Thompson, chief investment officer of hedge fund Lekker Capital, said in a Telegram message: “Powell’s stance is extremely hawkish.” Notably, Powell downplayed last week’s market turmoil, calling it “orderly market operation.”
Thompson said: “I had hoped that he would at least acknowledge the increased volatility and cracks in the Treasury market, but he did not do so.”
Thompson said that Powell’s tone suggests that investors should lower their expectations for rate cuts at the upcoming meeting, which could put pressure on risk assets including cryptocurrencies.
Thompson concluded: “Unless the Fed intervenes for bad reasons, the chances of a rate cut in May are virtually zero, and I don’t think a June cut is a done deal. The bullish case for cryptocurrencies and Bitcoin in particular is about liquidity and intervention by policymakers. Both of these seem far off, so it’s hard for me to paint a positive picture in the near term.”
