The performance of the Federal Reserve may have "poured cold water" on Bitcoin's impact on $20,000

Bitcoin may hit $20,000 by the end of the year due to inflation concerns, but unfortunately, that may not be happening anytime soon.

This can be seen in the Federal Reserve's new approach to setting U.S. monetary policy for the world's leading cryptocurrency, bitcoin. Chairman Jerome Powell surprised safe-haven bulls Thursday morning by adopting a more accommodative stance on inflation.

He pledged to keep interest rates at an average of 2% for some time, but also promised to act if rates got too high.

Fed Chairman Powell: The current surge in inflation will not lead to a new inflation range: Fed Chairman Powell said that inflation will be well above the target in the next few months before slowing down. The (economic) outlook for the U.S. next year is quite strong, with growth well above trend. The Fed's view is that the current surge in inflation will not lead to a new inflation range. It's hard to say how long high inflation will last, but expect us to get through it. We see no evidence that current high inflation is affecting expectations. If inflation remains high for too long, the Fed will respond. (Golden Ten) [2021/9/30 17:16:10]

Bitcoin traders had expected more — a compelling speech pointing to a period of rising inflation. But what many people overlook is that the Fed's primary goal of 2% inflation will never be achieved. Since the U.S. central bank introduced the policy in 2012, inflation has risen by an average of just 1.4%.

A Biden administration may consider reshaping the Fed's board of governors: Officials are discussing reshaping the Fed's board of governors to more closely align the administration on priorities such as tightening policy, people familiar with the matter said, as the White House considers renominating Fed Chair Jerome Powell. banking regulation, etc. U.S. President Joe Biden currently has one Fed official vacancy to fill and could replace three more top central bank officials over the next year, depending on how far he wants to overhaul the central bank's leadership. While no decision has been made, the lack of a clear replacement for Powell, combined with his expressed interest in continuing in the role, suggests renomination is a possibility, the sources said. U.S. Treasury Secretary Yellen expressed satisfaction with the way Powell steered monetary policy amid the coronavirus crisis. (Golden Ten) [2021/7/8 0:35:05]

It was also the Fed's longest stretch of inflation since the 2008 economic crisis, which ultimately failed to boost inflation. Now, even as the U.S. central bank braces for higher inflationary pressures, it has given no clue as to whether it will continue its asset purchase program to support the economy.

Barclays Bank: The Fed is expected to announce a tapering of its bond purchases in September and begin tapering in November: Barclays economists said the Fed unexpectedly brought forward the timing of a rate hike on Wednesday. Its reduced focus on the risks of the virus and its lack of reference to slowing job growth are hawkish stances. The hawkish stance puts the Fed on track to formally announce a tapering of its bond purchases at its September rate decision and to slow its $120 billion-a-month bond purchases starting in November. (Golden Ten) [2021/6/17 23:45:32]

Bitcoin is up over 200% from March to now, simply because of the Fed's aggressive stimulus and lower interest rates.

While the U.S. central bank has admitted it will keep interest rates near zero, doubts about its bond purchases have stalled a bitcoin bull run. This bull run could push the price of Bitcoin to $20,000 in 2020, as many expected.

The uncertainty intensified during Powell's speech Thursday morning. Bitcoin jumped 2.86% to nearly $11,600 in minutes after the Fed chair pledged to boost inflation. But the cryptocurrency fell 4.08 percent to $11,220 after Powell decided to act on higher-than-expected inflation levels.

(Bitcoin's continuous rise and fall after Powell's speech. Data source: TradingView.com)

Gold, a safe-haven asset like bitcoin, saw a similar seesaw move during Powell’s keynote address. The precious metal edged higher at first, but then retreated back to lower levels on expectations of overly dovish inflation.

U.S. Treasuries are more indicative of investors' views on the outlook for inflation. Yields on long-dated U.S. Treasury bonds rose on Thursday, suggesting lower bond rates.

(U.S. 10-year bond prices fell after Powell's speech. Data source: TradingView.com)

On the other hand, short-dated U.S. Treasury prices rose while yields plummeted. The two diametrically opposed moves suggest that the Federal Reserve's pledge to keep short-term interest rates near zero will underpin demand for U.S. Treasuries. At the same time, higher inflation makes long-term bonds less attractive.

Even the Fed hasn't announced plans to buy more long-term debt. The U.S. central bank is likely to discuss the issue further in the minutes of its monthly meeting, which will be published on Sept. 15.

As for Bitcoin, Bitcoin is expected to move higher as medium- to long-term real yields in the U.S. fall due to higher inflation tolerance and lower interest rates. However, the fact that the Fed will continue to intervene once inflation gets too high will also keep cryptocurrencies speculating about the continuation of their upside.

Bitcoin could still reach a record $20,000, but 2020 does not appear to be the year to achieve this milestone.

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