The U.S. Federal Reserve has created a “self-inflicted disaster” with its “twin policy errors,” Pantera Capital’s chief executive officer Dan Morehead said.
See related article: Bitcoin, Ether recover as Fed guidance reduces policy uncertainty
Fast facts
- Keeping overnight rates too low for too long was a mistake that the Fed is now beginning to slowly correct, Morehead said.
- Not reducing their massive bond holdings in “any meaningful way” is the “more destructive” of the two policy errors, he said.
- The Fed has bought government and mortgage bonds equaling over 200% of all mortgage lending in the U.S. in the past two years, Morehead said.
- That has led markets to be overvalued by US$15 trillion relative to the 50-year average real rate, he said.
- “I’m very concerned that the Fed doesn’t seem to have any sense of what is causing inflation — their own manipulation of the mortgage market,” Morehead said.
- As the Fed starts to unwind, it will drain excess liquidity in the market, leading to asset prices correcting, he said.
- Meanwhile, in crypto, “the cascading collapse of major projects exposed the incredible amount of excess leverage in the system,” Morehead said.
- That could lead to a few more “major meltdowns” in crypto in the next month or two as every “bankrupt leveraged entity leaves a string of problems for their counterparties,” he said.
- “Once it’s very clear that the market’s bottomed, then it will make sense to rotate out of Bitcoin back into higher risk, higher reward alts (alternative investments),” Morehead said.
See related article: Wall Street seems to sense opportunity in distressed crypto markets