At 22:00 tonight, Federal Reserve Chairman Powell will deliver his final speech in this capacity at Jackson Hole. This event has already stirred waves in the financial markets and has a significant potential impact on the cryptocurrency sector.
Recently, the 'New Federal Reserve News Agency' revealed in advance that Powell is preparing to abandon the monetary policy framework implemented in 2020. Five years ago, in response to the economic situation at that time, the Federal Reserve allowed the inflation rate to be slightly above the 2% target for a period of time while focusing only on concerns about 'high unemployment rates.' This logic seemed reasonable against the backdrop of economic downturn in the early pandemic. However, in 2021, inflation unexpectedly soared far beyond expectations, delivering a heavy blow to the Federal Reserve. Now, the Federal Reserve plans to return to a more traditional framework, placing greater emphasis on inflation and no longer being 'lenient' on employment without principles. This means that, from a medium-term perspective, the Federal Reserve will become more 'hawkish,' responding more sensitively to inflation while being relatively lenient on employment. The future space and pace of interest rate declines will likely be slower than the market expects. Even if there are future interest rate cuts, they are likely to be 'passive' and 'extremely cautious,' quite different from the continuous easing seen in 2019.
Currently, the market lacks a consensus expectation for this meeting, which is precisely the most dangerous aspect. Regardless of the content of Powell's speech, it may trigger an excessive market reaction. Historically, adjustments to Federal Reserve policies often have a significant impact on the cryptocurrency market. When the Federal Reserve adopts an accommodative monetary policy, market liquidity increases, leading to a large influx of capital into the cryptocurrency sector and driving up cryptocurrency prices. Conversely, when the Federal Reserve tightens monetary policy and capital flows back to traditional financial markets, the cryptocurrency sector faces pressure from capital outflows, making prices susceptible to declines. The potential shift in the Federal Reserve's policy framework undoubtedly has cryptocurrency investors on edge.
From the recent performance of the cryptocurrency market, subtle changes have already emerged. The U.S. dollar has strengthened, gold has declined, and the S&P 500 has fallen for five consecutive days, marking the longest losing streak of the year. These fluctuations in traditional financial markets have begun to transmit to the cryptocurrency sector. The interconnection between the cryptocurrency market and traditional financial markets is increasing, and investors must closely monitor the potential impacts on the cryptocurrency sector while paying attention to the influence of Federal Reserve policy adjustments on traditional financial markets.
It is worth noting that the Federal Reserve has also made other significant moves regarding cryptocurrency-related policies recently. On August 15, Eastern Time, the Federal Reserve announced the official cancellation of the 'New Activity Supervision Program,' which was originally designed to regulate banks' activities in the cryptocurrency and fintech sectors. In the future, this regulatory work will be incorporated into the regular banking regulatory system. This measure simplifies the compliance process for banks engaging in cryptocurrency business. Although core regulatory principles such as anti-money laundering and consumer protection remain unchanged, it is seen by the market as a continuation of the trend of U.S. regulatory agencies embracing the cryptocurrency industry. Since President Trump began his second term, the political environment in the U.S. has become increasingly friendly towards cryptocurrency, and the Trump administration has consistently promoted the idea of making the U.S. the 'global cryptocurrency capital.' In April of this year, the Federal Reserve rescinded an earlier regulatory guideline requiring banks to obtain government regulatory approval before engaging in any cryptocurrency business. At the same time, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) also simultaneously abolished corresponding regulatory provisions, allowing banks to independently decide whether to engage in cryptocurrency business within the existing risk management framework. These policy adjustments have injected new vitality into the cryptocurrency market and brought new opportunities for its development.
However, the uncertainty surrounding Chairman Powell's speech this time makes the future trajectory of the cryptocurrency market full of variables. If Powell conveys a more 'hawkish' signal in his speech, emphasizing the determination to control inflation and further tightening monetary policy, the cryptocurrency market may face risks of capital outflow and price declines. Conversely, if Powell's remarks are relatively mild, expressing optimism about future economic prospects and suggesting a more flexible adjustment of monetary policy, the cryptocurrency market may experience a rebound.
For cryptocurrency investors, it is essential to closely monitor the dynamics of Federal Reserve policies and adjust investment strategies in a timely manner in the current complex and volatile market environment. On one hand, attention should be paid to the trends in traditional financial markets, as they often have a transmission effect on the cryptocurrency sector; on the other hand, it is crucial to conduct in-depth research on the fundamentals of the cryptocurrency market itself, including project progress, technological innovation, and market demand, to seize investment opportunities amid market fluctuations. Additionally, investors need to manage risk appropriately, avoid over-investment, and ensure the safety and stability of their assets.
Tonight's speech by Powell will undoubtedly become the focus of attention for cryptocurrency investors, and the content of his remarks is likely to become an important turning point for the cryptocurrency market in the near future. Investors must remain highly alert and prepare for responses.
