The US is Losing Control of Its Monetary Policy: Is Bitcoin Ready for a Major Rally?

• In-depth analysis by Jordi Alexander, CIO of Selini Capital, explores the potential ripple effects of the US monetary policy on Bitcoin and the crypto market.
• At the heart of Alexander’s argument is the observation that the Federal Reserve’s approach to addressing current economic conditions may be nearing an inflection point.
• The analyst sees recent changes, particularly in long-term bonds, as potential precursors to policy changes.

Jordi Alexander, CIO of Selini Capital, has issued strong criticism of the Fed’s monetary policy: they are losing control of the bond market!

The US is Losing Control of the Bond Market

In-depth analysis by Jordi Alexander, CIO of Selini Capital, explores the potential ripple effects of the US monetary policy on Bitcoin and the crypto market. By drawing connections between traditional financial mechanisms and the emerging digital asset space, the analysis elucidates a series of complex market dynamics that every investor should be aware of.

At the core of Alexander’s argument is the observation that the Federal Reserve’s approach to addressing current economic conditions may be nearing an inflection point. Concerns in the bond market have been growing, with long-term bonds experiencing a 46% drop from their peak values in March 2020. Additionally, 30-year bonds have performed even worse, with a 53% decline.

Alexander stated, “I haven’t expressed my macro views for a while – but now it really looks like everything is about to start moving. I’ve been analyzing the consequences of US policy for months. The results I see are starting to show now. Slowly at first… then suddenly, the Fed is going to mess things up.”

The analyst views recent changes in long-term bonds, particularly as a potential precursor to policy changes. In this regard, Alexander refers to a specific announcement highlighted by Dallas Fed President Lorie Logan in a recent Wall Street Journal article. Logan has started expressing concerns about rising Treasury yields and forward premiums, particularly in relation to the previous hawkish stance of the Federal Open Market Committee (FOMC). Her concerns underscore the tension between the need to tighten financial conditions to combat inflation and the tug-of-war between the strength of the labor market and overall economic output.

Interestingly, Logan believes that reasons for tightening financial conditions, particularly the recent increases in Treasury yields and forward premiums, could reduce the necessity for the Fed to raise the federal funds rate. While interpreting Logan’s shift in perspective, Alexander remarks, “This is my expected Bat-Signal. What does it mean? Why is the Dallas Fed President doing a big baby U-turn? Because they are starting to realize that they are losing control of the bond market!”

Going into more detail about the intricacies of the bond market, Alexander highlighted the difference between the front end and the back end of the yield curve. “The front curve, which includes T-bills and 2-year Treasury notes, is typically very sensitive to the Fed’s interest rate guidance… But they have never had as good control over the back end of the curve, especially for 30-year bonds,” he said. Alexander’s analysis suggests a potential loss of market control by the Federal Reserve, with waning demand for these long-term bonds.

This evolving bond market scenario leaves the Federal Reserve in a tough spot. Alexander speculates further on this potential dilemma, asking, “What if they agree to stop hiking or even cutting rates but bond buyers still don’t come?” and suggests a potential shift in the Fed’s approach, hinting at a return to quantitative easing (QE) policies.

Drawing parallels with the Japanese financial scenario, Alexander states, “The USD could be the victim of this policy direction, similar to the situation with the Yen in Japan.” He then connects these macroeconomic changes to the digital asset space, saying, “Goodbye Quantitative Tightening, welcome back my old friend Mr. QE. The timeline is uncertain, but it’s time to start paying attention to things like forward premiums, as Dallas Fed and others appear to be.”

Bitcoin and Crypto Could Reap Significant Profits

In the end, QE has been something that Bitcoin and cryptocurrencies have greatly benefited from in previous bull markets. Therefore, Alexander predicts, “Yes, your internet money (i.e., Bitcoin and crypto) can benefit from this.” Interestingly, this view is shared by many analysts.

Arthur Hayes, co-founder of BitMEX, predicts that the Fed will have to reintroduce QE in the near future. Hayes forecasts that Bitcoin’s price will reach $750,000 in 2026.

However, this perspective is not universally accepted. Yuga.eth from Coinbase believes that Austan Goolsbee relies on the Fed’s commitment to combating inflation. In response, Alexander provides a sharp response, “Increasing debt doesn’t help with inflation in any way. As I initially wrote, the only way to do this properly is to raise taxes, especially on corporations.