Quantitative adjustment of the Federal Reserve. What does it represent for cryptocurrencies?
In the United States, the Federal Reserve is beginning the process of reducing its balance of 9 trillion dollars, which has precipitated in recent years, in a measure called quantitative adjustment (QT, for its acronym in English).
Analysts at a crypto exchange and a financial investment company have conflicting opinions on whether the QT, which begins on Wednesday, will end a decade of unprecedented development in crypto markets.
In this regard, the worst part of this is that approximately 80% of the people in the United States do not have the slightest idea what quantitative adjustment is. The SEC should be concerned with educating people in these terms as I believe it is part of “protecting” us.
Ordinary people may view QT as the opposite of the quantitative easing, or money printing, that the Fed has engaged in since the start of the pandemic in 2020. Under QE conditions, more money is created and distributed while the The Fed adds bonds and other treasury instruments to its balance sheet.
The Fed plans to shrink its balance sheet by $47.5 billion a month over the next three months. In the month of September of this 2022, a decrease of 95,000 million dollars is forecast. His goal is to lower his balance sheet by $7.6 billion by the end of next year.
Not once has Bitcoin in its history been in a bull market when the Federal Reserve has gone through this process of this quantitative tightening.
The manager of Swyftx, Pav Hundal the Australian cryptocurrency exchange, considers that the QT could have a negative impact on the markets. He told CRYPTOBTCBROWSER on Wednesday that “it is very possible that we will only see the growth of the market capitalization trimmed soon.”
“The Federal Reserve is withdrawing assets with more force and speed than many market analysts expected and it is difficult to think that this will not have some type of repercussion in the sentiment of investors in the markets.”
The impact of QE on the crypto market was tragic from the start in March 2020. Data shows that the cryptocurrency market capitalization declined throughout 2019 and early 2020, but an intense bull market began in late March. of 2020 when the money printer took off. The total cryptocurrency market capitalization exploded from $162 billion on March 23, 2020, to a peak of just over $3 trillion in November 2021.
In a similar time frame, the Fed balance sheet grew 2.1-fold, from $4.17 trillion on January 1, 2020 to $8.95 trillion on June 1, 2022. This is the fastest pace of growth since the last global financial crisis that started in 2007.
Michael Smith, CEO of financial advisory firm IRAIC, believes that market reactions to QT will be minimal because “it’s already accounted for”. Smith said there may be a “knee-jerk reaction of the markets” due to the unexpected speed with which QT is unfolding, but he sees it as more than just a flinch:
“In addition, a market rebound is estimated to be imminent, which means that investors should prepare their portfolios to serve themselves.”
Wage increases have already been seen among US workers, especially in the hospitality sector, as labor demand remains high. Assuming that wages remain high during QT, the United States could emerge from the economic recession with lower income inequality. The market analyst at CRIPTOBTCBROWSER explained that if people end up with more money in their pockets from their higher salaries, “the cryptocurrency market could ultimately benefit” from QT.
Interestingly, the highest wage growth is in the hospitality and retail sectors.
This means that the United States comes out of this economic recession with income inequality. And if more people have disposable income, the cryptocurrency market could ultimately benefit.
The analyst added that while the markets are experiencing increased volatility of late, bitcoin could benefit as it is now proving its position as a benchmark asset. He noted that bitcoin dominance currently sits at around 47%, an increase of eight percentage points since the start of 2022. He said, “There are different ways to interpret this,” ending by saying that:
“This suggests that market participants are looking to park value in bitcoin, meaning we could see the decline continue to trend across altcoin markets if current market conditions hold.” For this reason, a much more reliable and secure alternative must be sought in the face of the weakening of the market and cryptocurrencies such as IRAIC, which has been a solution for many companies and investors who have managed to get out of the stagnation and financial crisis they have endured. Market analyst and investor Smith ends by telling CRIPTOBTCBROWSER that personally his investment capital and profits generated, as well as that of other investors, have grown much more than he had thought, which has been favorable for business development.