Bitcoin, crypto, Nasdaq await interest rate decision as banking turmoil promises extra volatility
- The ECB will announce its latest interest rate decision today
- The market at large may see mass volatility, with tech and crypto the most extreme
- Banking turmoil means ECB face stern policy test, with inflation remaining high and demanding further hikes
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Just like the Pope is Catholic, Bitcoin is volatile.
Today, it may be even more so. The ECB is due to announce its latest interest rate decision at 9:15 AM Eastern time in what sets up as one of the most pivotal of the year (this is the second time I have used that pun today and I am really happy with it).
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50 bps is currently the expectation at a 60% chance, although far from guaranteed with some analysts forecasting 25 bps, which the market has put a 40% probability on when looking at the futures-implied odds.
Will Bitcoin go up? Will the stock market?
As has been the case over the past year, interest rate meetings and inflation reveals have been the two biggest drivers across the market.
This is true of both Bitcoin and the stock market, especially the more volatile and tech-heavy Nasdaq Composite (IXIC). The duo have moved in near-lockstep, as the chart below demonstrates well.
Investors will be hoping the ECB hikes by only 25 bps, or at least soften language on their forecasts of rate hikes in future.
With the chances material of both a 25 bps and 50 bps hike, there will likely be substantial volatility, for Bitcoin and the Nasdaq in particular. The former has been on an absolute tear recently, while the Nasdaq has not quite kept pace this year but is still up a stout 10% year-to-date.
What does the banking turmoil mean?
This time, it is different because of the banking turmoil which has engulfed the market over the last week or so.
What began in the US with the collapse of Silicon Valley Bank spread this week to Europe. Credit Suisse (SWX:CSGN) got hammered yesterday, with the Swiss National Bank standing in to announce it would lend up to $54 billion to the embattled bank to shore up its liquidity.
This announcement saw its share price bounce over 22% this morning, following a nasty plunge of 24% Wednesday.
And therein lies the predicament today for the ECB. While inflation is still high on the continent – and way beyond the 2% target – there will always be pressure to hike. But more stern policy talk this afternoon may trigger a fresh wave of selling, and with the concern this week around the stability of the ecosystem at large, it provides pause for thought.
It is why, for the first time in quite a while, the rate meeting today is genuinely intriguing. Previously, the announcements were essentially locked in,. This was also the case this time around, until last week at least, when the odds in the market had a 50 bps hike marked at 100% when looking at futures pricing.
But with banking turmoil and a creaking economy fighting against the always-formidable threat of inflation, it’s a tough line to toe. We will find out the ECB’s latest approach today at 9:15 AM Eastern time.