Warning from Fed Chair Powell sends Bitcoin prices dropping towards $60,000

Following the disclosure by a billionaire bitcoin buyer that they had sold their bitcoin, the price of bitcoin abruptly fell back toward $60,000.

A "true correction" is being feared, which has caused the price of bitcoin to plummet by nearly 15% during the past month.

Now that one of the biggest supporters of bitcoin has stated that the digital asset may someday displace the US dollar, Jerome Powell, chair of the Federal Reserve, has warned of a "critical period" for the Fed and labeled the current levels of deficit as "unsustainable."

According to the Financial Times, Powell stated at the European Central Bank's Portugal conference that "you can't run these levels in good economic times for very long" and that the Biden administration was taking excessive risks by "running an enormous deficit at a time when we are at full employment."

The level of debt we have is completely sustainable but the path we are on is unsustainable

Jerome Powell, Federal Reserve chair

The United States' rapidly growing $34 trillion debt load prompted Treasury Secretary Janet Yellen to issue a dire warning in May, which some believe could help drive the price of bitcoin to $1 million within the next 18 months.

A close monitoring

In recent months, traders of bitcoin, cryptocurrencies, and stocks have been closely monitoring the Fed for indications that it will start reducing interest rates. As a result, analysts have been forced to lower their initial projections of seven rate cuts by 2024 to just one or two.

Powell revealed that his primary concern during this critical period is achieving the right balance on monetary policy, something he often contemplates in the early hours, according to the AP.

The Federal Reserve signaled last month that it would only make one rate cut in 2024 and that further reductions would be made in 2025. The Fed is under pressure to lower interest rates after setting records for rate hikes in response to massive stimulus spending and money printing during the Covid era, which caused inflation to skyrocket.

Russ Mould, investment director at AJ Bell, stated in an email that Powell stated the U.S. was back on a "disinflationary path," but he also added that more data was needed before the Fed would consider lowering rates.

Powell said the U.S. was back on a ‘disinflationary path’ but added that more data was required before the Fed would consider cutting rates

Russ Mould

He also added that from the perspective of the market, the latter phrase sounds a bit like a broken record, so the most significant aspect of Powell's speech was the mention of disinflation, which investors took to mean there was a stronger case for lowering rates soon.

A September interest rate cut could be "cement" if the jobs report on Friday indicates that hiring has slowed. All eyes will be on the Fed's June meeting minutes, which will be released on Wednesday.

If Friday's jobs report turns out to be softer than anticipated, it would probably strengthen the case for the cut, which the markets currently give a 70% chance of happening—possibly a little underdone, according to Michael Brown, senior research strategist at Pepperstone, who spoke with MarketWatch.

A softer-than-expected jobs report on Friday, were it to come to pass, would likely further cement the case for said cut, to which markets assign a roughly 70% chance—perhaps, a touch underdone

Michael Brown, senior research strategist at Pepperstone

The world's largest asset manager, BlackRock, has issued a warning due to the higher-for-longer interest rate environment. Its analysts claim that a "unprecedented" scenario is developing that could negatively impact the price of bitcoin and the cryptocurrency market.

Furthermore, the analysts at BlackRock, which has spearheaded the Wall Street spot bitcoin exchange-traded fund (ETF) revolution and contributed to this year's price surge, wrote in a report that they see central banks forced to maintain interest rates higher than pre-pandemic levels in order to combat persistent inflationary pressures.

This prospective monetary policy stance could potentially dampen investor sentiment towards Bitcoin and other cryptocurrencies, as historically lower interest rates have been associated with heightened demand for digital assets.

BlackRock's report underscores the importance of this issue for the crypto market.