Novogratz: faster interest rate hikes will “slow crypto down”

Galaxy Digital CEO observes growing “bearish” sentiment around leading cryptocurrencies

Central bank intervention to arrest runaway inflation could arrest the momentum within the cryptocurrency market, a leading crypto investor and commentator has cautioned. 

Novogratz

Speaking to CNBC, Mike Novogratz, CEO of Galaxy Investment Partners, observed that inflation was emerging “in pretty bad ways in the US” and said that the US Federal Reserve may opt “to move a little faster” to combat the problem. 

The billionaire added: "That would slow all assets down. It would slow the Nasdaq down. It would slow crypto down, if we have to start raising rates much faster than we thought."

In response to the Covid-19 crisis, the Fed slashed interest rates to record lows and injected unprecedented levels of liquidity in order to bolster US and – by extension – world markets. 

With over 40% of all US dollars in existence being printed in the past 18 months, inflation-wary investors sought out potential hedges. Such sentiment accelerated the ongoing rise of cryptocurrencies such as Bitcoin. 

Novogratz warned, however, that “people are getting pretty bearish” on cryptocurrencies after the past 12 months of rapid gains. 

Jerome Powell

At the start of the week, Federal Reserve Chairman Jerome Powell seemingly abandoned his claim that inflation above the central bank’s target of 2% would prove to be transitory. 

With inflation in the US rising to a 31-year high in October, Powell was pressed by legislators to  explain why prices continued to rise at a much higher rate than officially anticipated. 

He stated: “So I think the word transitory has different meanings to different people. To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won't leave a permanent mark in the form of higher inflation. I think it's probably a good time to retire that word and try to explain more clearly what we mean.”

Later attributing the phenomenon to supply chain woes and not the central bank’s substantial intervention over the past two years, Powell added:

“So, I think what we missed about inflation was the we didn't predict the supply side problems. And those are highly unusual and very difficult, very non-linear, and it's really hard to predict those things. But that's really what we missed. And that's why all of the professional forecasters had much lower inflation projections.”

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