Over the past several months, the Federal Reserve has been purchasing many leading assets as a means of keeping the U.S. economy somewhat stable during the coronavirus pandemic. This overspending and overprinting of traditional fiat money to ensure people have stimulus measures during the pandemic has caused many traders – both standard and institutional – to pile their money into commodities like bitcoin, which is no longer a speculative asset in many people’s minds.
If the Federal Reserve Limits Spending, Bitcoin’s Price May Fall
BTC has garnered a new reputation in that it is now widely looked upon as a hedge tool of sorts; something that can potentially keep people’s money safe during times of economic strife. However, this was all during a period when money problems were running rampant.
The Federal Reserve has recently hinted that it’s potentially going to lessen or even stop the purchase of stocks and additional assets. This suggests that the American economy is beginning to stabilize, and according to many analysts and industry experts, this could negatively affect the price of bitcoin and leading cryptocurrencies.
As it stands, bitcoin is trading for well over $33,000 after hitting a recent all-time high of about $40,000. Ethereum is also trading for over $1,000 for the first time in about three years, and many forms of crypto are doing better than they ever have. However, this was during a time when the U.S. dollar and other forms of fiat were failing to keep up.
Granted the economy is showing signs of recovery, bitcoin could find itself experiencing a hard correction. Chicago Fed president Charles Evans recently released a statement explaining:
It could be the case that things are going a lot better, and we do end up doing some type of tapering.
Men like Alex Kruger – an economist and crypto trader – believes that this would have heavy repercussions on bitcoin, and that the price may experience a heavy drop of sorts, though he says it may take a while to happen. He mentions:
[Tapering] would be a major problem for the price of bitcoin as it would diminish the macro and institutional demand. I don’t expect any tapering in 2021, but we need to keep an eye out for it and be quick to react.
Don’t Be Too Worried… Yet…
Alex Kuptsikevich – senior financial analyst at FX Pro – shares this sentiment, claiming that while traders probably don’t need to be too worried at this time, they should certainly keep their eyes and ears open for any signs that the Federal Reserve is looking to backtrack. He says:
It is unlikely that a rollback from the Fed is something to be seriously feared for the time being. Despite possible signs of displeasure with Powell’s bloated equity capitalization, a withdrawal of support for the markets would almost certainly be a shock to the economy, ensuring a second recession.