What will happen to the crypto markets when quantitative tightening takes full effect and the Federal Reserve shelves the money printer?
The United States Federal Reserve is starting the process of paring back its $9 trillion balance sheet that ballooned in recent years in a move called quantitative tightening (QT).
Analysts from a crypto exchange and financial investment firm have conflicting opinions about whether QT, starting on Wednesday, will put an end to a decade of unprecedented growth across crypto markets.
The worst part about this is that I would imagine ~80% of Americans have no idea what QUANTITIVE TIGHTENING is
Why would we, this wasn’t taught in public school
The SEC should worry about educating Americans on these terms as I believe that’s part of “PROTECTING” us https://t.co/Z8RwUNPJwF
— WendyO.eth ✨ (@CryptoWendyO) May 31, 2022
Laypeople can consider QT the opposite of quantitative easing (QE), or money printing, which the Fed has been engaged in since the start of the COVID-19 pandemic in 2020. Under QE conditions, more money is created and distributed while the Fed adds bonds and other treasury instruments to its balance sheet.
The Fed plans on shrinking its balance sheet by $47.5 billion per month for the next three months. In September of this year, it plans on a $95 billion reduction. It aims to see its balance sheet reduced by $7.6 trillion by the end of 2023.
Bitcoin has never once in its history been in a bull market while the Federal Reserve did quantitative tightening.
Smart whales spent the last 12+ months dumping their bags on dumb retail.
The mega crash is inevitable!
— CryptoWhale (@CryptoWhale) May 4, 2022
Pav Hundal, manager at the Australian crypto exchange Swyftx, believes that QT could have a negative impact on markets. He told Cointelegraph on Wednesday that “it’s very possible thatyou might just see growth in market cap trimmed slightly:”
Wage equality:
Interestingly, the highest wage growth is in the hospitality & retail sectors.
This could mean that the US comes out of this economic downturn with ↓ income inequality.
And if more people have disposable income, the crypto market could ultimately benefit. pic.twitter.com/J3DQ2DwnDZ
— Economiser (@economiserly) May 30, 2022
Hundal added that while markets are experiencing increased volatility lately, Bitcoin (BTC) could benefit as it is now demonstrating its position as a bellwether asset. He noted that Bitcoin dominance is currently at about 47%, up by eight percentage points from the start of 2022. He said, “There are different ways to interpret this,” adding:
“It does suggest that market participants are seeking to park value in Bitcoin, meaning we could see weakness continue to trend across alt coin markets if current market conditions continue to play out.”
