Last week, Bitcoin (BTC 1.80%) fell 10%, its biggest drop in two months. That has led to increasing speculation that Bitcoin might fall below $20,000 as part of an ongoing bear market correction. And Bitcoin super-bear Peter Schiff has even suggested that Bitcoin might crash to $10,000.
So Bitcoin investors are understandably keeping a careful eye on the Federal Reserve’s 45th annual economic symposium in Jackson Hole, Wyoming, this week. They will be looking for hints about what might come next from policy makers. Any dramatic change in policy from the Fed could send the price of Bitcoin up or down significantly.
Jackson Hole and crypto
One important point to keep in mind is that Jackson Hole is not a policy-setting event. Instead, it’s mainly an academic conference where 120 of the world’s top central bankers, economists, and policy makers gather to discuss important economic trends and issues. Typically, less than half of the attendees are actually central bankers. The theme of this year’s event is, “Reassessing Constraints on the Economy and Policy.”
In his keynote speech on Aug. 26, Fed Chairman Jerome Powell is expected to discuss the macroeconomic landscape facing the Fed and provide hints whether the central bank is finished raising interest rates. This is the story that’s getting all the attention in the mainstream media. Everyone is eager to know how the Fed feels about inflation, and Bitcoin investors will be looking for any potential signal of a policy shift.
The consensus now seems to be that any further tightening by the Fed will send Bitcoin lower. Conversely, if the Fed signals that it is done tightening, Bitcoin might shoot higher.
Bitcoin and institutional investors
What seems to be different about this year’s Jackson Hole event is all the attention on Bitcoin coming from institutional investors. Big foundations, endowments, and pension funds thinking about investing in Bitcoin are concerned about what impact any Fed action might have on their crypto holdings. Coinbase, for example, even released a special research note on the Jackson Hole event (“What to expect in Wyoming”) for its institutional investor base.
Remember that Coinbase recently entered into a partnership deal with BlackRock, the world’s largest asset manager with $10 trillion in assets under management, so there’s a lot of serious money waiting to see what the Fed signals in Jackson Hole. These institutional money managers will almost certainly tune in on Friday morning to watch Powell’s speech live. A lot of the price action in Bitcoin will depend on what these large institutional investors do.
Bitcoin and cryptocurrency policy
There are a number of other narratives that might come out of the Jackson Hole meeting that could have at least an indirect impact on Bitcoin. Academics and policy makers will present papers, convene discussions, and give speeches throughout the three-day event. While the exact agenda has not yet been released for this year’s event, crypto has been a hot-button topic throughout 2022, so some sessions at Jackson Hole could focus on Bitcoin and crypto.
One issue that has been particularly top of mind for the Fed is the role of “crypto banks.” The Fed recently released further guidance on the role of banks seeking to engage in crypto asset-related activities. The hope from crypto investors is that the Fed will become much more supportive of these crypto banks, and that would be good news for Bitcoin.
There could also be much more insight coming on the cryptocurrency regulation front. In the past, Powell has raised questions about the risk profile of crypto assets, but he seems to be coming to the conclusion that the type of risk posed by Bitcoin is manageable by the U.S. financial system. Any loosening of the regulatory environment around Bitcoin would be a huge positive.
Bitcoin and retail investors
Ultimately, if you plan to buy and HODL (crypto lingo for “hold”) Bitcoin, the most important news coming out of Jackson Hole might be related to the academic papers released at the event, not the Powell speech. These papers could give investors a much more detailed view of the long-term future of Bitcoin and how central bankers (and their friends) view crypto.
Yes, inflation-busting measures from the Fed are important and could weigh heavily on Bitcoin’s short-term fortunes. But even if Bitcoin breaches the important $20,000 mark as a result of Fed tightening, it’s much more likely that number will seem minuscule one day.
Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global, Inc. The Motley Fool has a disclosure policy.