January 28, 2021

Cryptheory

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Bitcoin faces uncertainty of “tapering”, hints Fed Chair

3 min read

TL;DR Breakdown

  • Experts say that Bitcoin bubble is soon going to burst as it’s unsustainable in the near term.
  • The Federal Reserve has hinted of a possible “tapering” which can lead to Bitcoin plummeting.
  • On the other hand, rollback from the Fed is unlikely as this would cripple the economy.

Bitcoin has nearly quadrupled over the past year soaring up to $34,000 after its downfall in the year 2018 shaking investors’ trust. Bitcoin enthusiasts await what Fed chair Jerome Powell says when he addresses the audience hosted by Princeton University on Thursday at 12:30 pm EST on a webinar.

The huge rally in Bitcoin has been in unison with the surge in Tesla stocks. This can be attributed to the massive stimulus packages poured into the market by the U.S Federal Reserve.

Experts argue that the Bitcoin bubble is soon going to burst as its “parabolic rise is unsustainable in the near term”. The UK financial regulator has made remarks on the volatile nature of Bitcoins and said people willing to invest in it should very well be ready to lose their money.

Federal Reserve hinted of a possible “tapering” of asset purchases

The Federal Reserve has hinted of a possible “tapering” of its huge asset purchases which is due in late 2021 or early 2022. Institutional investors eye the Fed Chair Jerome Powell say on the matter. Many institutional investors as well as individuals turned to bitcoin in 2020 due to inflation triggered by the freshly-printed currency poured into the economy as stimulus packages. Reducing of stimulus or “tapering” might lead to a similar plummeting of Bitcoin as in 2017-18.

As the crypto market sways strongly with fluctuations as compared to the blue-chip stocks, a “tapering” would adversely affect the market and cause turbulence. This can be seen with the recent plummet in the crypto market on Monday where Bitcoin lost nearly $170 billion in market capitalization.

Rollback from the Fed is unlikely as the economy will be crippled

Experts say that the rollback from the Fed is unlikely as this would cripple the economy and push it into a second recession. Let’s take a lesson from the past history of recession:

Countries that are in the midst of an economic crisis often tighten their financial thumbscrews. They impose capital controls on their populations that prevent them from doing basic things like taking cash out of the bank in times of financial turmoil. Some people are turning to bitcoin as an alternative form of currency, despite the warnings from regulatory agencies.

– Danny Bradbury

It can be recalled way back in late April 2020, the world’s leading monetary authorities (referred to as central banks for G7 nations) bought nearly $1.4 trillion of financial assets over the period, Bloomberg reported pushing their balance sheets to record sizes to pad against economic collapse. The European Central Bank, Bank of Japan, and Bank of England all joined in implementing quantitative easing programs. Central banks of Canada, New Zealand, and Australia kicked off their first such policies over that month in 2020 as the coronavirus threat turned global.





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