Lately, the Federal Reserve unveiled its plan to increase interest rates to control strong inflation. Amid such a hawkish stance, JPMorgan urges crypto investors to focus on valuations and ignore the short-term direction.
Fed Chair Jerome Powell pushed the crypto markets into a tailspin after reiterating that the central bank would raise interest rates and keep them higher for extended periods. Due to Powell’s bearish remarks, Bitcoin and top altcoins erased their price gains. Many analysts also expect Fed’s hawkish stand could lead to a recession in the US.
JPMorgan Asset Management’s David Kelly has some advice for rattled investors; the economy is fighting recession. Given this backdrop, looking at valuations is the best way to be positioned now. Ensure the overweight US and international value and stocks with relatively low price-to-earnings ratio. He also recommended investors focus more on valuations and not fall for volatile investments like crypto.
‘Sell Your Crypto’
David Kell believes that stocks will conquer the center stage. Investors must consider growth stocks at this point. He also suggested clearing large-cap tech stocks while advising selling Bitcoin and crypto.
This year has been a roller coaster ride for the broader crypto market. Overleverage in the crypto market and liquidity crisis led to a severe correction during Q2 2022.
However, Bitcoin and the broader crypto market picked up momentum starting in July but witnessed a sharp retracement following the Fed commentary. Kelly expects the volatility to increase while predicting a high risk of recession.
He expects the economy to be normal by the end of 2023. “The Federal Reserve is overestimating the strength of the US economy as it feels guilty about the fact that inflation went up under their watch,” Kelly notes
To add to it, Minneapolis Federal Reserve Bank President Neel Kashkari said that he was “happy” about the market sell-off since it means that investors understand that the Fed is fully committed to bringing inflation back to 2%. Kashkari says that he was “not excited” by the stock market rally in late July after the central bank announced its second consecutive 75-basis-point rate hike.
Digital Assets are Junk?
Furthermore, Umar Farooq, the head of JPMorgan’s digital assets department, claims that most crypto assets are “junk” and that actual crypto use cases remain underdeveloped.
In a panel discussion at the Monetary Authority of Singapore’s Green Shoots Seminar, Farooq suggested that regulation is yet to catch up with the emerging industry, preventing many traditional financial (TradFi) institutions from getting involved.
He further opined that the industry lacks sufficient development to support high-value “major transactions” across TradFi institutions or host products like tokenized deposits. Farooq asserted that crypto, blockchain, and the Web3 movement are merely a platform for wild speculation at this point.