Bitcoin (BTC) Plunges 20% After Fed Freeze?...'Red Flag' for Bond and Coin Market Chain Reaction

▲ Bitcoin (BTC), Federal Reserve (Fed)/AI generated image

A warning has emerged that even if the U.S. Federal Reserve (Fed) freezes interest rates in July, a chain reaction of bond market backlash, stock market correction, and further decline in Bitcoin (BTC) could occur.

Veteran trader Benjamin Cowen predicted in a video uploaded to his YouTube channel on July 29 (local time) that the Fed is likely to freeze the benchmark interest rate at this meeting and begin raising it from September. He explained that while some banks anticipate a July hike, the market's reflected probability of a hike is low, making an immediate policy shift an unexpected decision.

Cowen pointed to the rise in long-term Treasury yields as a key signal for interest rate hike pressure. He analyzed that the U.S. 30-year Treasury yield is attempting to break through the 5.1-5.2% level, which it has repeatedly failed to breach since 2023, and if the Fed chooses to freeze rates, the 10-year yield could also climb towards 5%. He stated, “The bond market sees inflation, not the labor market, as the problem.”

Inflation rose from 2.4% to over 4.1% in a matter of months before falling to 3.4-3.5%. However, Cowen believes that with new unemployment claims falling to 187,000 and the unemployment rate dropping to 4.2%, the risk of an inflation rebound has increased more than the slowdown in the labor market. He suggested that if energy prices rise again, the Fed's justification for increasing the intensity of tightening could also strengthen.

The interest rate futures market reflected a 29.4% chance of a July hike and anticipated the benchmark interest rate to rise to 4.25% by year-end. Cowen interpreted the fact that the U.S. 2-year Treasury yield, at 4.1-4.2%, is exceeding the federal funds rate as a sign that current monetary policy is not sufficiently restrictive. He emphasized, “The market is telling the Fed that interest rate hikes are necessary.”

Cowen predicted that if the Fed freezes interest rates, long-term Treasury yields would jump, and the S&P 500 could see a 10-20% correction starting from August-September. He explained that in the midterm election years of 2014, 2018, and 2022, the stock market also fell by 10-20% in the second half, and in 2023, the stock market experienced about a 10% correction alongside rising long-term rates. He analyzed that stock market weakness and subsequent rate hikes could lead to Bitcoin forming a market cycle bottom in Q4, and highly speculative altcoins could face even greater pressure.

[Article Key Summary]

-Benjamin Cowen predicted that the Fed is likely to freeze interest rates in July and then begin hiking from September.

-He analyzed that the Fed's freeze could trigger a rise in long-term Treasury yields and a 10-20% correction in the S&P 500.

-Cowen foresaw that stock market adjustments and strengthened tightening could lead to Bitcoin forming a market cycle bottom in Q4.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*