Warsh's "Hawkish" Jackson Hole Speech & Impacts on Bitcoin's Bull Run

**SPEAKER_1** (0:00)
All right, welcome back to Morning Trade Live. It's time now for the big picture. Let's get back to what Kevin Warsh had to say with the team from Charles Schwab, Cooper Howard, Director of Fixed Income Research and Strategy, Schwab Center for Financial Research, and Jim Farraioli, Director of Crypto Research and Strategy. Gentlemen, thank you so much for joining me. Coop, let's start with you. Did he clarify anything from July?

**Cooper Howard** (0:21)
You know, I think that we did clarify some things from July. Obviously, it was a little bit longer of a speech, so not the eight minute speech that we've seen from Chairman Powell.
The big things that really stood out to me though, Sam, is how hawkish it was.
He started off making an analogy about rate hikes or about going on a hike, and really kind of continued on the path during the speech about potentially raising interest rates at least more in the near term. So we've seen from the market, they've obviously repriced their expectations right now. If you look at the September potential for a rate hike, that's about a coin flip. I don't think that that's too surprising. He was very much focused on the inflation mandate, that the Fed has been incorrect about inflation for the past 65 months. It's their responsibility for getting it under control. The other thing that stood out to me, Sam, is that he targeted into the 2% PCE inflation. That was one of the metrics that was potentially, I don't want to say concerning, but maybe a question mark in the market size of saying, is the Fed going to change the outlook of what they're looking at inflation or potentially even in change the number at the 2% target? And obviously, that didn't come to fruition. So I think those were some of the big things that pointed out, but overall, very much a hawkish press release.

**SPEAKER_1** (1:38)
Yeah, and obviously starting off by saying, don't call this forward guidance. And being pretty quick to give an example of 2021 as well, talking about how that guidance may have slowed policy responses to high inflation too.
Jim, just getting over to you, obviously we have been watching this move in cryptocurrencies over the last couple of weeks or so. I know that there are some macro factors and drivers that have been behind some of that move too. What have you made of the reaction? What did you make of the speech?

**Jim Farraioli** (2:11)
I think a lot of what Cooper said is coming through in crypto markets. The past week, we've really seen a rebirth of the debasement trade, whether you're looking at gold and precious metals or cryptocurrencies such as Bitcoin.
As the pressure started, we saw gold and Bitcoin both sell off and they're slightly down on day, but they require it. But the total tone of that conference was very hawkish, obviously, with investors starting to price in rate hikes. That does put the debasement narrative maybe back into check. I think crypto prices are reflecting to that news this morning. I will caveat that Bitcoin is down less than 1 percent, which is actually a relatively low volatile day for something as volatile as Bitcoin. Generally, on any given day, it can rise or fall over 2 percent. It's been a muted reaction and we think that's partially due to a rebalance that we've seen over the past week. The market got a little imbalanced in terms of shorts relative to longs and how close they were to spot prices. We had a pretty epic short squeeze last week, and the market has now reset and is in a more balanced place from a leveraged structure here.
We've done work that's shown that liquidations of leveraged futures typically can explain 50 percent of Bitcoin's daily price move. So with largely a reset in positioning in those markets, there seem to be less fuel for the fire, so to say, today given today's hawkishness.

**SPEAKER_1** (3:52)
All right. I suppose those who were looking for a hawkish tone got their wish today.
Interesting because obviously we've been seeing this pricing in of the bond market. Coop, just getting back over to you. It looks like things have settled down a little bit. Certainly on the 10-year, we did see obviously a substantial move with respect to short-term rates here, which is obviously why we've got these increased rate hiking bets now for September. In that case, what will you be looking at until then as far as the next few data sets to give you some indications of which way things might go here? What do you think the Fed is going to be looking at the most?