Is it possible that the US Federal Reserve’s decision to tighten its balance sheet contributed to bitcoin and the wider cryptocurrency market losing steam in 2018? If so, what should crypto investors expect from the independently-run central bank in the future?
Mati Greenspan, the senior market analyst at trading platform eToro, explored these and other questions in a wide-ranging webinar session on Tuesday.
Fed’s Balance Sheet Reduction May Have Shaken BitcoinSpeaking on how even diverse asset classes can show correlation, Greenspan said that the Fed’s ongoing quantitative tightening program could have been one of a variety of reasons that the bitcoin price dropped so severely last year.
He explained that the Fed’s decision to reverse its crisis-era bond buying prompted a selling wave across all the mainstream and nascent markets, including US stocks, equities, and crypto assets. The decision took money out of the system as the Treasury started looking for new buyers for its debts, thus turning investors away from their buying habits.
Fed QE is Reversing Since the Beginning of 2018; ECB and BOJ Are Holding | Source: Fed, ECB, BOJ
In 2017, Greenspan stressed, the bitcoin price went up on central bank-led quantitative easing and tighter interest rates program. As the trimming of a $4 trillion Fed portfolio remains under an auto-pilot mode, it would make the Fed raise interest rates by another quarter-point. Other analysts expect the quantitative tightening program to run until the Fed balance sheet comes inside the range of $3.6-$3.7 trillion. When that would happen cannot be predicted.
Economists at Morgan Stanley believe that bond selling would continue until September. New York-based TD Securities put the deadline as far as October. Barclays plays its prediction more safely by placing the program closure in “mid-to-late 2019.” Deutsche Bank sees it extending until the end of 2019, while UBS distinctively expects the program to conclude in June 2020 at $3.5 trillion.
Sum-of-all-analysis hints that bitcoin could still be inside a bearish correction against the US dollar. It is also the same for other markets, including S&P 500, Nasdaq, and Dow Jones.
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https://www.ccn.com/from-bitcoin-to-brexit-heres-what-investors-need-to-watch-for-in-2019/