According to the Bitfury boss, traders do not perceive BTC as a great hedge against inflation during periods of extreme fiscal tightening. For that reason hodlers can expect the price of BTC to stay relatively low at least in the short term.
In a short but pointed interview with CNBC on Aug. 29, Brooks also criticized the SEC for its litigious handling of the crypto industry, saying that regulators need to “get serious” and offer proper guidance rather than going to the courts.
U.S. inflation is currently at 8.5%, down very slightly from its recent 40-year high of 9.1% in July, but still well above the target rate of 2%. Until recently, widespread opinion in the cryptosphere was that deflationary assets such as Bitcoin would perform well in such a high inflationary environment.
However, in recent months that theory has been put to the test and found wanting. The price of Bitcoin today is hovering around the $20,000 mark, down 60% from just a year ago.
According to Brooks, the Fed’s aggressive response to high inflationary pressures has chilled the market.
“We have talked about the idea that bitcoin is an inflation hedge,” Brooks told CNBC. “The more the market expects tough policy from the Fed, the more people think the Fed is going to keep an aggressive posture, and that would tend to harm Bitcoin.”
Since the start of the year the Fed has pursued a policy of aggressive financial tightening, increasing the cost of borrowing through interest rates. At the start of 2022 interest rates were near zero. The Fed increased interest rates by 0.25% in March, 0.50% in May, 0.75% in June and 0.75% in July. In total rates have been raised by 2.25% since the start of the year.
Another reason for Bitcoin’s perceived underperformance may be due to the type of inflation that the current market faces. According to Steven Lubka of Swan Bitcoin, BTC only performs well in inflationary environments caused by the devaluation of currency, or in layman’s terms – money printing. Right now the bulk of inflation is being driven by supply chain disruption and the scarcity of essential commodities such as wheat and oil.
Get serious guys
While Brooks did not exactly mince his words with regards to the Fed and its economic policies, the greater part of his ire seemed reserved for the Securities and Exchange Commission (SEC).
Brooks was especially annoyed by the SEC’s approach to regulation in the cryptosphere which is light on actionable guidance and heavy on litigation. That has also harmed Bitcoin and the wider market.
“Regulation does not mean suing people, and the approach the SEC has had for the last couple of years has been to not tell anybody what the rules are in advance but to sue people after they’ve launched a project, started a company, or listed a token, and then caused people to infer what the rules were later. That’s not a good thing, and so at some point congress and the regulators need to get serious about telling people, ‘what is the speed limit on the crypto highway?’” said Brooks.
Brooks’ words seem to echo similar statements from Superintendent Adrienne A. Harris of the New York State Department of Financial Services (DFS). In June Harris, a savvy political operator who has stated her intention to work towards a fairer crypto regulatory landscape, went on the record to state, “We should have transparency about what the rules of the road are,” steering away from “regulation by enforcement.”
Should such an environment ever be fostered, Brooks would not be the only member of the crypto community to celebrate. For now, the guesswork continues.
BeInCrypto has reached out to company or individual involved in the story to get an official statement about the recent developments, but it has yet to hear back.