On Wednesday, major cryptocurrency prices soared after the Federal Reserve declared that it would accelerate its tapering of asset purchases. The program was due to end in March. It also announced that the benchmark interest rates would rise three times next fiscal year.
Following the Fed’s announcement, Bitcoin soared from roughly $47,800 to over $49,350. Bitcoin is worth $48,078, a rise of 2.2% in 24 hours. At press time, Ethereum stood at $4k.
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The crypto market may have already factored in the Fed’s decision to accelerate tapering. Bitcoin lost over 25% since November’s all-time peak of $68,991 (November). Ether is down more than 15% since its peak of $4,865.6.
Market traders predicted that major cryptocurrency would surge if Fed policy was more aggressive than expected. “We’ve been in a risk-off environment in bitcoin and the crypto asset broadly over the last month,” Louis LaValle, managing director at crypto fund manager 3iQ Digital Assets, said. “If the FOMC (Federal Open Market Committee) meeting doesn’t make blockbuster headlines, that could be a buying opportunity for those on the sidelines.”
Powell stated in November that the Fed will “start to reduce the pace of asset purchases,” prompting many to believe that an interest rate hike would be announced at today’s meeting. Recently, President Biden renominated Jerome Powell as Federal Reserve Chair for a second term.
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The reverse of Quantitative Easing programs, like as asset purchases and so-called “money printing” is known as tapering. The Fed purchases $40 billion of US Agency Securities each month and $80 billion US Treasury Securities every month. The anxiety has caused stock prices to fall as tapering techniques are well-known for triggering economic downturns.
According to today’s Fed statement, the interest rate will continue around zero until complete employment recovery to pre-Covid levels is achieved. This is not likely to occur anytime soon, despite Omicron Covid varieties reaching new record highs today in the United States as well as the United Kingdom.
Bitcoin Spikes| Source: BTCUSD on TradingView.com
Bitcoin is viewed as a hedge, but volatility threatens
Investors consider the biggest cryptocurrency market cap as a hedge against inflation. This is due to the belief in the supply being strictly controlled by the programming within the underlying blockchain. The Federal Reserve’s human-decided monetary policies, which have inflated its balance sheet to approximately $8.7 trillion, more than double where it was in early 2020, contrast with that hard-coded procedure.
Trader believe that bitcoin, which is a potentially dangerous asset, encourages investors to place larger bets. A shift away from these “dovish” policies could be a drag on bitcoin.
It’s also unclear whether an unusually high number of Covid-19 instances will frighten financial markets, and if so, whether Bitcoin will follow suit, as it did in March 2020.
See also:|The COVID-19 Pandemic Has Passed and Bitcoin Might Be More Strong Than Ever
Featured image by Unsplash.com. Charts from TradingView.com