Bitcoin (BTC) has rebounded by 20% to almost $22,500 since Sep. 7. But bull trap risks are abound in the long run as Elon Musk and Cathie Wood sound an alarm over a potential deflation crisis.
Cathie Wood: “Deflation in the pipeline”
The Tesla CEO tweeted over the weekend that a major Federal Reserve interest rate hike could increase the possibility of deflation. In other words, Musk suggests that the demand for goods and services will fall in the United States against rising unemployment.
A major Fed rate hike risks deflation
— Elon Musk (@elonmusk) September 9, 2022
Rate hikes have been typically bad for Bitcoin this year. In context, the period of the Fed raising its benchmark rates from near zero in March 2022 to 2.25%-2.50% in August 2022 has coincided with BTC price declining over 50%.
To this point, the labor sector has been very resilient. Nonetheless, the latest Bureau of Labor Statistics report shows that the jobless rate has risen to 3.7% from 3.5% in August. Even Alphabet (Google) warned that they could turn to layoffs soon to stay 20% more efficient.
But Fed Chairman Jerome Powell has asserted that the central bank could hike rates further to bring inflation down to their preferred target of 2%.
As of July, the U.S. consumer price index (CPI) was 8.5% year-over-year. The August inflation data is scheduled to release on Sep. 13, with a Reuters poll of economists predicting it would fall to 8.1%, citing a recent drop in energy prices.
That is still far from the Fed’s 2% inflation target, which according to David Blanchflower, a former Bank of England rate setting committee member, will lead to a hard landing. Thus, a hawkish Fed could usher in rising joblessness and an economic recession, similar to what Musk predicts about deflation.
Along the same lines, Ark Invest CEO Cathie Wood, who sees Bitcoin hitting $1 million by 2030, cited the latest Manheim data, noting that the used car prices dropped 4% in August and roughly 50% in 2022. The metric again indicates waning consumer demand.
Deflation in the pipeline, heading for the PPI, CPI, PCE Deflator: from post-COVID price peaks, lumber -60%,…