After rallying an insane amount, Bitcoin has made a gradual correction, deflating back down from highs around $40,000 to current market prices very near $30,000.
For reference, Bitcoin’s previous peak was $20,000 at Christmas time of 2017.
Not too long ago, BTC value was down around $6500.
Now analysts are looking at what’s next in the short term. Some are seeing the potential for additional drops.
At Coindesk, Omkar Godbole explains this by noting that what’s next for Bitcoin may be tightly tied to the actions of the Federal Reserve, the U.S. central bank that is currently keeping interest rates low and buying massive amounts of treasury bonds.
“The Fed Reserve is expected to leave the interest rate unchanged near zero and maintain its liquidity-boosting, bond-purchasing plan at around $120 billion/month,” Godbole writes. “If so, the status-quo decision would be unlikely to elicit much of a reaction from the markets, bitcoin (BTC, -5.78%)‘s included. However, stocks and Bitcoin would drop and the dollar likely draw bids, if Fed Chairman Jerome Powell drops hints of a gradual unwinding of stimulus programs.”
In other words, Bitcoin’s rise has been tied to the dollar’s stress activity. But if the Fed decides to try to “taper” or tighten up the economy based on any economic real growth, Bitcoin and stocks could fall further. Remember, keeping the status quo means maintaining near zero interest rates and buying $120 billion worth of bonds each month.
Are there any side effects to this rampant intervention by the central bank?
Cashflow Capitalist at SeekingAlpha argues that some unintended consequences are the gutting of savings potential for the lower and middle classes, as well as widening wealth inequality due to financial incentives in the capital gains sector, summarizing a lengthy broadside this way:
“Despite QE frequently being described as ‘money printing,’ including by me, it is effectively an asset swap that lowers the average duration and interest rate on the government’s debt. QE does not generate increased bank lending or economic growth, and in fact it has a number of economically disadvantageous side effects. The Fed finds itself in a dilemma in which diminished economic growth will be the result of whatever choice it makes. In this situation, the stock market is profoundly disconnected from reality.”
Any assertion that the market is in some way “disconnected from reality” bears consideration for investors. Do your own research to base your portfolio interests on what you think will happen to the dollar, and equities, and crypto, in light of Fed tampering.
