Dan Morehead, the founder and managing partner of Pantera Capital, recently appeared on the chat show ‘Squawk Box’. He talked about various topics concerning the crypto markets and the factors affecting them. The discourse involved the impact of interest rates on equities, the Fed’s approach to inflation, and treasury rate trends.
Dan Morehead’s Prediction About Crypto Prices
Morehead started the conversation by addressing the worries that are concerning everyone. He talked about how the crypto industry is going through a rough patch right now. He said that rising rates are causing panic among many traders. Moreover, he credited the Federal Reserve for lowering rates in the past four decades. However, he said that Feds can’t continue to provide that kind of support anymore.
Interestingly, Morehead predicted the rise in Treasury yield and Federal Funds rate two years ago. He said that they both will have a spike of around 5%. Believing that the rates will go even higher, he asserted that they haven’t plateaued yet. This could be because the real rate for the reserve is 1% over inflation. He said that the current inflation rate is more than double the FR’s target.
He mentioned that wage inflation is on the rise at 4.5% and core inflation is at 4.4%. At the same time, he disapproved of the notion that rates are too high. He reminded that FR’s goal is to keep inflation under 2% and they’ve done more than that. Furthermore, he highlighted that “owner’s equivalent rent” also plays a role here. Morehead said that it would take at least two years for it to mature. Nonetheless, inflation will go up by 1.5% irrespective of the housing prices.
The other factors driving inflation have been around for more than two years. Besides that, he also aired a sort of warning for everyone. He said that equity values will take a hit if his prediction about rising rates is right. As per the S&P 500’s current valuation, equities will be 20% lower. In fact, he’s afraid that the downturn of equities could continue for a few years. According to him, there are risk factors that will cause this to happen.
In addition, he said that there is a possibility of long-term stagnation. That’s because it has already happened twice in the last 13 years. Summing up the conversation, he shed some light on the crypto market’s current state. He said that the correlation between cryptocurrencies and the S&P 500 hasn’t always been synchronous. Historically, it’s 0.1 but currently, it is 0.2. Apart from that, the Federal Reserve’s actions also impact this market cyclically.
For market participants, predictions and analysis matter a lot. When an expert like Morehead gives them, they become more significant. Regardless, the market participants will hope that the markets will stay favorable for them. At the same time, they’ll have to tweak their strategy as per the circumstances.