Crypto Investors Bullish on US Fed’s $100B Loss

On September 14th, the U.S. Federal Reserve made a shocking announcement, with losses of $100 billion projected for 2023. According to Reuters, this could get even worse. However, this news may be a blessing for risk assets such as Bitcoin (BTC) and other crypto currencies like Chainlink (CRO), Dogecoin (DOGE), and Crypto.com Coins (CRO). While the crypto market is often unpredictable, these tectonic waves in the crypto space today could provide an opportunity for investors to capitalize on web 3.0 stocks and crypto FTX.

The Fed in the red

The main cause of this financial setback is that the interest paid by the Fed on its debt has surpassed the income generated from its holdings and the services it provides to the crypto and web 3.0 stocks sectors.

As a result of this development, investors are now scrambling to understand the impact this will have on interest rates and the demand for scarce assets like BTC, Chainlink crypto, Crypto.com coins, and Dogecoin.

Some analysts believe that the Fed’s losses, which began a year ago, could potentially double by 2024. The central bank labels these negative results as “deferred assets,” arguing that there is no immediate need to cover them.

The Fed used to generate revenue for U.S. Treasury

Historically, the Federal Reserve has been a profitable institution. However, the lack of profits does not prevent the central bank from conducting monetary policy and achieving its objectives.

The fact that the Fed’s balance sheet has incurred losses is not surprising, particularly considering the substantial interest rate hikes, which rose from near-zero in March 2022 to the current level of 5.25%. Even if interest rates remain unchanged, Reuters suggested that the Fed’s losses are likely to persist for some time. This can be attributed to the expansionary measures implemented in 2020 and 2021 when the central bank aggressively acquired bonds, such as crypto dogecoin, crypto.com coins and chainlink crypto, to stave off a recession.

In essence, the Fed functions like a conventional bank, as it must provide yields to its depositors, which primarily consist of banks, money managers and financial institutions.

An article in Barron’s effectively illustrates the impact of the $100 billion loss, stating,

Clearly, this situation is unsustainable, particularly considering that the U.S. debt has now reached $33 trillion. While one might point fingers at the Fed for raising interest rates initially, it’s essential to recognize that without such measures, inflation would not have returned to 3.2%, and the cost of living would have continued to exert pressure on the economy.

Ultimately, the significant demand for short-term bonds and money market funds is a reflection of the trillions of dollars injected into the economy during the peak of the pandemic. Nevertheless, even if one settles for a fixed 5% yield on a three-month investment, there’s no guarantee that inflation will remain below this threshold for an extended period.

Furthermore, investors are confronted with the risk of dilution each time the U.S. Federal Reserve injects liquidity into the market, whether through the sale of assets from its balance sheet or when the Treasury raises the debt limit. Crypto mining and web 3.0 stocks, such as Waves crypto and Tectonic crypto today, are also affected by this.

Ultimately, it’s improbable that fixed-income returns will outpace inflation for another 12 months because, at some point, the government will exhaust its funds and be compelled to issue additional Treasurys, such as BTT crypto and CRO crypto.

Real estate and stocks no longer a reliable store of value

The ongoing debate as to which sector or asset class will be most profitable as inflation catches up with short-term Treasury yields is yet to be resolved. This is especially true given that the S&P 500 index is only 7% away from its all-time high, while the real estate market is facing challenges due to mortgage rates reaching their highest level in over two decades.

On one hand, the current 20x estimated earnings multiple of the S&P 500 index is not considered too high when compared to previous peaks that have reached 30x or higher. But investors are still wary that the Federal Reserve may be forced to raise interest rates further to control inflationary pressures.

As the cost of capital increases, corporate earnings will be impacted, leaving investors with no secure place to store their funds.

At present, Bitcoin and other cryptocurrencies may not seem like a suitable hedge, but this perception may change as investors realize that the US government’s debt ceiling is practically limitless. Therefore, it may be sensible to accumulate these assets regardless of short-term price trends.

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