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The Federal Reserve is beginning the process of reducing its $9 trillion balance sheet, which has ballooned in recent years during so-called “quantitative easing.”
Financial and crypto analysts disagree on whether the quantitative tightening, which kicks off June 1, will usher in a decade of unprecedented growth in cryptocurrency markets.
The Fed plans to reduce its balance sheet by $47.5 billion a month over the next three months. In September of this year, it is planned to reduce costs by $ 95 billion, by the end of 2023 the balance should be reduced by $ 7.6 trillion.
Bitcoin has never in its history conducted a bull rally during the period quantitative tightening of the Fed.
Smart whales have spent the last 12-plus months selling their assets to unintelligent retail traders.
A megacatastrof is inevitable!
The manager of the Australian cryptocurrency exchange Swyftx Pav Hundal believes that quantitative tightening can have a negative impact on the markets:
The Fed is taking funds more actively and faster than many analysts expected, and it is difficult to imagine that this will not have any impact on investor sentiment in different markets.
Started in March 2020, quantitative easing has had a huge impact on the cryptocurrency market. CoinGecko data shows that the capitalization of the cryptocurrency market in 2019 and early 2020 decreased, but at the end of March 2020, when the printer started working, an active bull run began. The total capitalization of the crypto market rose from $ 162 billion on March 23, 2020 to a peak just above $ 3 trillion in November last year.
Over the same period of time, the Fed’s balance sheet increased 2.1 times from $ 4.17 trillion on January 1, 2020 to $ 8.95 trillion on June 1, 2022. This is the highest growth rate since the last global financial crisis, which began in 2007.
Nigel Green, CEO of financial advisory firm deVere Group, believes that the market reaction to quantitative tightening will be minimal, since “it is already taken into account in the price.” Green added that the sharp reaction of the markets can be observed because of the incredible speed with which it unfolds.
Wage increases among American workers, especially in the tourism and entertainment industries, are already underway as demand for labor remains high. Assuming that quantitative tightening keeps wages high, the U.S. could emerge from an economic downturn with reduced income inequality.
Cryptocurrency market analyst Economiser explained in a Tweet on May 31 that if people have more money in their pockets thanks to higher wages, the cryptocurrency market will ultimately benefit from quantitative tightening.
Swyftx’s Hundal added that despite the heightened volatility of the markets, Bitcoin (BTC) could win as it now holds the position of a leading asset. He noted that bitcoin’s dominance has now grown significantly compared to early 2022.
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