Huobi Research Institute’s investigative arm, which is part of the Asian exchange’s Asian Exchange, has published a report on how future changes in U.S. Federal Reserve policy might impact cryptocurrency prices. The report, titled “Taper Landed: The Turning Point of The Cryptocurrency Market is Coming,” states that due to the upcoming tapering, the continued growth of high-risk assets (including cryptocurrency) could be difficult to maintain.
Huobi Report examines Fed Taper Effects
Huobi Research’s latest report, titled “Taper Landed: The Turning Point of The Cryptocurrency Market is Coming,” establishes the possible route cryptocurrency prices could take due to the action of the Federal Reserve taper. The taper — that is, the continual reduction of dollar liquidity in the market due to reduction in bond purchases — could negatively affect the growth of bitcoin and other assets.
According to research forecasts, the taper discussions began months ago. It could begin next June with a decrease in the purchase of bonds and an end to quantitative easing (QE). This will affect not only bitcoin but also high risk assets. Later, it is anticipated that the effect of this reduction will be more noticeable in established assets.
Stop Stock-to-Flow
“Taper Landed” also takes a few jabs at the well-known stock-to-flow (S2F) model, which predicts the rise of bitcoin’s price based on its availability and production in the market. This report was published on November 24th and predicted that this model would be unable to take into account the economic factors surrounding bitcoin. Huobi Research explained this to William Lee:
Why does the “victorious” bitcoin S2F model suddenly fail? When constructing Plan B, the only factors that were considered when calculating the model were the monthly SF rate of bitcoin and the historical price data. It also ignored external macro effects on the market.
Lee further explains that the growth in bitcoin’s price has to do with the loosening of economic policies that the U.S. and other governments undertook, ostensibly to save the market during the coronavirus pandemic. According to the report, the taper is about to begin and the interest rate hike expected next year could cause a bubble in stock and cryptocurrency prices.
According to the study, if taper accelerates, market effects can be even faster.
What do you think about Huobi Research Institute’s taper study? Please leave your comments below.
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