Bitcoin and Gold Suffer as Fed Turns Hawkish
The recent rally in Bitcoin and gold has come to an end after Federal Reserve Chairman Kevin Warsh delivered a hawkish message at Jackson Hole. The two assets had been moving in tandem, with both hitting new highs last week as investors sought safe-haven investments amid concerns about inflation.
The debasement trade, which drove the rally, was sparked by the US Treasury's decision to double its buyback cap for longer-dated debt to at least $4 billion. This led to a surge in gold and Bitcoin exchange-traded funds (ETFs), with $7 billion flowing into these assets across five trading days.
Gold prices reached an intra-day high of $4,697 an ounce on Tuesday, while Bitcoin touched $81,354 on Binance, its highest level in about 3 months. However, after Warsh's speech, both assets reversed course, with gold falling to around $4,432 on Monday and Bitcoin trading near $77,411.
Warsh's hawkish tone raised the odds of a September rate hike, with CME FedWatch data now putting the probability at 62.6%. This increase in interest rates makes holding assets that generate no yield, such as gold and Bitcoin, less attractive. As Zach Pandl, Head of Research at Grayscale, noted, this reflects investors treating Bitcoin as a monetary hedge rather than a leveraged bet on technology stocks.