In his latest analysis, cryptocurrency analyst Simen Koch draws attention to the Federal Reserve's monetary policy and its impact on the altcoin market.
According to Koch, the Federal Reserve's tight monetary policy threatens the altcoin season, but it has not completely dashed hopes for the future.
US President Donald Trump continues to criticize Federal Reserve Chairman Jerome Powell. In his recent press conference, he said of Powell, "I don't think he's a smart person. I don't think he's a politician either. He doesn't like me. I've praised him and criticized him, but it doesn't work. He's just stupid." This statement clearly demonstrates the extent to which the conflict over monetary policy has escalated in American politics.
Trump advocates for a low interest rate policy in light of economic recovery and keeping the national debt under control. However, Powell insists on keeping interest rates high to combat inflation. With the decision announced last night, the Fed held its benchmark interest rate steady at 4.5%, marking its fifth decision to keep rates unchanged since December 2024.
The most important point Simen Koch emphasizes in his analysis is that the US economy is facing the risk of stagflation. Stagflation is a scenario in which economic recession, high inflation, and unemployment coincide. In such an environment, the Fed's scope for action is extremely limited: while interest rate increases exacerbate unemployment, rate cuts can exacerbate inflation.
While Trump is pushing the Fed to cut interest rates faster, citing the eurozone as an example, Powell is resisting this pressure. The eurozone has cut interest rates from 4.5% to 2.15% since last year, while the United States has only managed to cut them from 5.5% to 4.5%.
A high interest rate environment poses a significant threat to cryptocurrencies, especially altcoins. Historical data shows that altcoin bull seasons often coincide with low interest rates. Interest rates were relatively low during the bull periods of 2017 and 2021. However, interest rates are currently higher than those periods.
In addition, the Federal Reserve's balance sheet reduction program (quantitative tightening) continues. In other words, market liquidity is shrinking. In this environment, it becomes difficult for altcoins to advance. According to Powell, the Fed's move to balance sheet expansion is only possible if interest rates fall to zero, which, according to the Fed's forecasts, could be on the agenda as early as 2028.
Another important point Koch drew attention to was the withdrawal of small investors from the market. While the number of individual investors has declined since the summer, institutional investors (such as micro, strat, and ETFs) continue to accumulate Bitcoin. This poses a serious problem, especially for small altcoin projects, as their prices are highly dependent on the interest of individual investors.
In addition, conflicts in the Middle East, rising oil prices, and tensions in US domestic politics (between Trump and Powell) negatively impact market confidence, reducing demand for altcoins.
Despite this negative outlook, Simen Koch doesn't believe the altcoin season is completely over. Historically, retail investors first withdraw from the market, then Bitcoin's value rises, and finally, altcoin seasons begin. This scenario was repeated in the 2017 and 2021 cycles.
Therefore, according to Koch, despite the current pressures, the altcoin season could still begin. However, for this to happen, the Federal Reserve would need to cut interest rates and ease monetary policy. While this seems unlikely to happen anytime soon, it's too early to completely write off altcoins in this cycle.
*This is not investment advice.
