[Good Morning Market] Bitcoin Coupling vs. Powell's Dove

[Asia Economy Reporter Junho Hwang] The U.S. stock market closed slightly higher the previous day as concerns over liquidity absorption eased amid Bitcoin's downward trend weighing on the market. During the session, the Nasdaq fell by 3%, and Tesla dropped over 13%, showing how the cryptocurrency Bitcoin's price was impacting the real economy. However, Federal Reserve Chairman Jerome Powell's statement that "we will continue zero interest rates and large-scale asset purchases" acted as a fire extinguisher. Powell's remarks are expected to help lower the bond yields that had been rising, which in turn is anticipated to reduce the burden on the Korean stock market, which has been shaken by fears of liquidity absorption due to interest rate hikes.

Bitcoin's Plunge... Shaky Nasdaq

On the 17th, when the cryptocurrency 'Bitcoin' price surpassed $50,000 for the first time in history, the Bitcoin price was displayed on a large electronic board set up at the Upbit Lounge in Gangnam-gu, Seoul. Photo by Jinhyung Kang aymsdream@

On that day, Bitcoin plunged more than 16%. This directly affected the U.S. stock market. The stock price of Tesla, an American electric vehicle manufacturer, dropped as much as 13.5% during the session. Following this, most stocks linked to Bitcoin-themed sectors such as solar power and cannabis also plummeted. Consequently, the Nasdaq, which comprises U.S. technology stocks, fell as much as 3.9% at one point during the session.

Sangyoung Seo, a researcher at Kiwoom Securities, analyzed, "The increased volatility of Bitcoin seems to have triggered valuation pressure issues."

Meanwhile, Daehun Han, an equity strategy researcher at SK Securities, stated, "Bitcoin is also a new financial market 'catfish.' Since the synchronization between Bitcoin and market-leading stocks has increased, the direction of Bitcoin's price is important. Fortunately, it is expected to follow an upward trend."

Powell's Dovish Stance

However, on the same day, Fed Chairman Powell lightened the market mood by stating at a U.S. congressional hearing that "monetary policy will move cautiously and patiently." The market began to recover, easing the burden caused by Bitcoin's crash. Powell emphasized the need for employment recovery.

He said, "Inflation and employment still fall short of the Fed's goals," and noted that the current employment situation requires support. He further explained, "We will continue zero interest rates and large-scale asset purchases until substantial progress is made."

Powell diagnosed that COVID-19 significantly impacted inflation and that inflationary pressures are not threatening. He analyzed that inflation will not be a negative factor for the economy. Powell also emphasized, "The Fed is doing its best to use all tools to support the economy."

Regarding this, Jaekyun Ahn, a researcher at Korea Investment & Securities, said, "Following Bank of Korea Governor Ijuyeol's reaffirmation of an active simple purchase policy for market stabilization, Powell once again emphasized maintaining a monetary easing stance," and predicted, "Both Korean and U.S. bond markets are expected to be relieved."

He added, "Having confirmed Powell's remarks, the Korean bond market is expected to continue its strength in the latter part of yesterday's session. Although the first supplementary budget is expected to reach 20 trillion won, since the Bank of Korea's stance has been confirmed, it is expected to actively seek buying opportunities at low prices."

This content was produced with the assistance of AI translation services.