Analysts at Huobi Research have conducted a study in which they predict the impact of changes in the Fed’s policy on the cryptocurrency market.
author
report William Lee came to the conclusion that due to the reduction in the purchase of bonds by the US government, there will be a decrease in dollar liquidity, in such conditions, the growth of cryptocurrencies will become difficult to maintain.
A gradual reduction in bond purchases and a move away from quantitative easing, the Fed began to discuss a few months ago. And on October 4, the Fed announced the launch of the “Cone” program, which implies a reduction in dollar liquidity due to a gradual decrease in the volume of government purchases of bonds. It is predicted to start in June next year. But now more and more regulators are in favor of its early launch.
Lee explains that the current Fed’s policy to contain the effects of the pandemic is using quantitative easing, which is to inject liquidity into banks through continuous bond purchases, forcing banks to lend even at zero interest rates, thereby increasing market liquidity. The more bonds are bought, the more the Fed’s assets. Hence, quantitative easing is an unconventional policy applied when interest rates cannot be lowered.
The study’s author explains that Bitcoin’s rise is due to changes in interest rates and a weakening of economic policies that the US and other governments have taken to save the market during the COVID-19 pandemic. But with the upcoming hike in interest rates, this bubble, fueled by rising stocks and surging cryptocurrency prices, could burst next year.
The study says that if the process of reducing bond purchases accelerates, then the decline in the cryptocurrency market will occur even faster. Renowned investor and economist Louis Nallier also believes that a significant bubble has inflated in the stock market, which could lead to a strong correction of risky assets. In his opinion, in this case, bitcoin could fall to $ 10,000. Last month, all experts said that the reappointment of Jerome Powell as chairman of the Fed would allow the bulls to keep the previous strategy of investing in cryptocurrencies, and this will have a beneficial effect on the market.
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
