The US Federal Reserve’s policy of curtailing economic stimulus could lead to a bear market for bitcoin. This opinion was expressed by Huobi crypto exchange analysts in a recent report. In their opinion, the reduction in incentives will lead to “diminishing returns on liquidity.”
While the curtailment of stimulus will not inherently change the direction of liquidity, high-risk assets like Bitcoin could, in theory, be more sensitive to changes, writes Huobi.
The exchange notes that after the curtailment of incentives, as a rule, there comes an increase in the key rate. This can also affect the price of all high-risk assets. An accelerated stimulus rollback would “in theory” ease quantitative easing, analysts say.
As a result of economic innovations, various types of high-risk assets, including bitcoin, will not be able to grow in price. As Huobi concluded, a potential depreciation of Bitcoin due to the above changes cannot be ruled out.
In November 2021, the head of the US Federal Reserve, Jerome Powell, announced a reduction in the stimulus program. However, despite the changes, the key rate will remain at the same level – 0-0.25%. Since November, the Fed has been reducing asset buybacks by $15 billion on a monthly basis. Of that amount, $10 billion is being cut in terms of US Treasury bond purchases, and the remaining $5 billion is mortgage-backed securities.
At the same time, Santiment found that talk of inflation is actively growing as bitcoin falls. According to analysts, social activity around the topic of inflation correlates with the actions of the Fed and the fall in the price of cryptocurrency.
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