Bitcoin Price Drops After Federal Reserve Chair Warns of Credit Crunch
Concerns have risen regarding a credit crunch resulting from significant tightening of lending standards amidst the banking crisis.
During Wednesday’s press conference, Federal Reserve Chair Jerome Powell noted that financial conditions may have tightened more than what U.S. benchmark indexes suggest.
When asked about the circumstances that would prompt an interest rate cut, particularly if credit conditions continue to tighten, Powell emphasized that traditional indexes primarily focus on rates and equities and do not capture lending conditions.
Powell acknowledged that sustained tighter lending conditions could have a significant macroeconomic impact that would be taken into account when making policy decisions.
However, he stated that rate cuts are not the Fed’s base case, and the central bank will evaluate the extent and duration of any potential impact before taking any action.
At the time of writing Bitcoin is trading at $27,120 after a 3.6% decrease in the past 24 hours. This pullback came after Bitcoin had surged almost 50% in less than two weeks, following the collapse of three regional U.S. banks and the Fed’s announcement of an emergency loan program to support depositors and the entire banking system.
The decline occurred after the Federal Reserve raised its key interest rate by 0.25%, as expected. Fed Chairman Jerome Powell suggested that the central bank was unlikely to reduce the rate further this year.
According to Castle Funds’ Chief Investment Officer, Peter Eberle, Bitcoin surged as investors sought diversification from bank deposits, and the Fed injected liquidity into the financial system to ease stress in the banking industry. However, Eberle noted that many investors continue to trade Bitcoin as a speculative asset.