Bitcoin begins another week of 2022 in the red, with a loss of 2% in 24 hours and 13.5% in seven days. Since 2021, the benchmark cryptocurrency has been in a downward trend and may continue to fall due to macroeconomic factors.
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The above appears to be in line with market sentiment. Due to an increase in inflation metrics and hitting new heights for the first-time in over 40 years, the U.S. Federal Reserve has become more hawkish.
Thus, turning potential price expectations for Bitcoin bearish as many believe risk assets will suffer in the short term from a shift in the FED’s monetary policy. Economist Alex Krüger recently presented a thesis in favor of the bulls. He can be found on Twitter said:
This has been extraordinarily bearish due to the speed of the Fed’s turnaround. It is not bearish to raise rates or reduce quantitative easing (QE), but it should not change the uptrend across asset classes.
The economist claims the recent price action to the downside has been triggered not just by the FED’s intention to modify its policies in light of the rise in inflation metrics, but mostly due to the speed in its decision.
Within a very short time, the U.S. banking institution had changed from no interest rate increase to several rate increases planned for 2022. This included a decrease in asset purchase programs and balance sheet normalization. This is the one that has been most negative for global markets.
In order to balance its finances, the FED would initiate a Quantitative Tightening program (QT), which could see it sell approximately $50 billion in assets per month. Krüger added the following on the potential implications for the crypto market:
Simple. Simple. As they have benefited from extraordinarily relaxed monetary policy they are also subject to unexpectedly tightening monetary policy as the money shifts into more secure asset classes.
What’s Bitcoin Fate As FED Turns Hawkish?
Under these conditions, Krüger believes Bitcoin could follow the following scenarios in the short term and through the first months of 2022. Depending on the upcoming CPI metrics, to be published this week, BTC’s price could react with a bounce or with a retest of 2021 major support at the lows of $30,000.
CPI that is high would result in this. But, Bitcoin may be able to stay within its current range if it makes another attempt to recover the area where its levels are. This would put BTC’s price close to $45,000 in the short term, but with more uncertainty for Q2, 2022.
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BTC has taken another swing at the bottoms, re-visiting the $39,000 level only to bounce quickly into $41,000. It remains to be seen whether this price action is sustainable, or if Bitcoin will return to its lower levels. 2022 promises to be full of surprises.