Federal Reserve to Taper Money Printing That Fueled Bitcoin Bet
As for the current news, it became known that the FRS plans to limit the process of monetary issuance, stimulating the growth of bitcoin rates. Monthly bond purchases of $120 billion served as a stimulus for bitcoin, given that investors see cryptocurrency as an insurance tool against a falling dollar in a tight monetary policy environment.
The U.S. Federal Reserve officially plans to stop buying $120 billion worth of securities a month, effectively taking the next step toward ending a post-coronavirus money-issuing program that has seen a number of investors actively buy bitcoins in an attempt to protect themselves from inflation. In its recent report, the Fed indicated that it would reduce asset purchases by $15 billion a month starting in November. Specifically, purchases of U.S. government securities will decline to $70 billion a month from $80 billion, and purchases of government-backed mortgages will decline to $35 billion a month from $40 billion. According to this plan, the Fed will continue to reduce its purchases by $15 billion a month until the program ends in the middle of next year. The asset purchase program, a type of economic stimulus funded by newly issued money called “quantitative easing,” or QE, has allowed the Fed’s balance sheet to double since March 2020.
Price of the cryptocurrency under pressure
U.S. central bank interest rates are unchanged and close to 0%, but a growing number of analysts in traditional markets are saying that the Fed will likely need to raise rates to curb inflation in an environment in which U.S. consumer prices are actively moving higher. Accordingly, if the Fed follows its chosen course and adjusts rates based on inflation, bitcoin could become increasingly attractive as insurance against a falling dollar, putting the price of the cryptocurrency under pressure as a result.
According to Joe DiPascale, CEO of the cryptocurrency hedge fund BitBull Capital, on the one hand, increased monetary policy controls could cause a slowdown in interest in bitcoin, given that it is used to protect against inflation, and lower quantitative easing potentially means lower inflation, but on the other hand, the effects of the largest quantitative easing ever could produce the highest inflation in history, contrary to the Fed’s desire to lower it. DiPasquale said BitBull has a target price of $80000 per bitcoin by the end of 2021.
Bitcoin often closely tied to U.S. stocks
Recently, more and more well-known investors, such as legendary hedge fund manager Paul Tudor Jones II and entrepreneurial businessman Peter Thiel, along with other crypto-traders, have been willing to believe that bitcoin is an effective mechanism for countering inflation. This is mainly due to the introduction of restrictions on issuing additional batches of bitcoin embedded in the software of the 12-year-old blockchain. JPMorgan analysts noted relatively recently that more and more investors are looking at cryptocurrency as a way to protect against inflation. However, bitcoin is also often closely tied to U.S. stocks, facing downward pressure when the Federal Reserve sharply tightens monetary policy, as higher borrowing costs often translate into higher financial costs for companies, potentially stalling quarterly earnings growth.
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Tatiana Leverya, Team bit4you.