With Bitcoin currently just above $46,000 and the Federal Reserve announcing its ramp up in tapering, plus rate rises on the way starting in 2022, this could lead to a continuation of the downward pressure on Bitcoin. However, we do need to step back and look at how far Bitcoin has come this year, and to acknowledge the signs of a possible reversal to the upside.
Last week’s announcement by the Fed, that it will reduce its monthly bond purchases by half, thereby reducing the amount of currency being pumped into the system, has had an obvious dampening effect on the crypto market. In addition, 3 rate rises planned for 2022 could also throw water on the crypto fire.
All the same, many analysts are somewhat dubious that the Fed will even get as far as the first rate rise in March. Renowned economist Danielle Dimartino Booth gave her thoughts on Bloomberg today as to why the yield curve could prevent the Fed’s plans:
“The yield curve is saying catch me if you can. Raise rates if you can catch me, and that I think is the biggest challenge of Powell, that he will not be able to hike into an inverted yield curve.”
“The economy is so riddled with debt that it is saying “We can’t handle higher interest rates.”
Economies across the world are very undecided on whether to hike interest rates. Although the Bank of England was the first major western economy to do so on Friday, Christine Lagarde, president of the European Central Bank said that rate hikes were unlikely in 2022 for the Euro zone, and called inflation a passing “hump”.
So where does this leave Bitcoin and the cryptocurrency market?
According to CoinGecko, the total value of all cryptocurrencies has risen to $2.25 trillion in 2021. This is a nigh on $1.5 trillion climb since the previous year.
The macro trend for crypto is most definitely up, and it could be argued that some dabbling in short term rate hikes, while perhaps having an effect in the short term, will not have a long term effect on the upward macro trend of such innovative and game-changing technology.
At the end of the day Bitcoin is sound money. It is a sovereign store of value that can’t be manipulated by governments. Institutions, as well as the average investor must surely realise the full import of this over the next few months of craziness in the fiat monetary system.
It’s the end of the year, and institutions are balancing the books ready for the new year, and all investors are paying their taxes. The Greyscale Bitcoin Trust Fund is at a huge premium, meaning that institutions can buy into Bitcoin at a discount of 21.5%.
The incredibly strong fundamentals of Bitcoin and a few of the leading cryptocurrencies mean that over time they will win out against collapsing fiat currencies. But, if the Fed decides to abort the reduction of bond purchases and is also forced to renege on interest rate hikes, then look for an upward explosion from crypto into 2022.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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