Huobi: Fed's decline in dollar liquidity will bring down the cryptocurrency market – Bits Media

Huobi Research analysts conducted a study, which predicts the impact of Fed policy changes on the cryptocurrency market.

Author
report by William Lee (William Lee) came to the conclusion, that due to the reduction in bond purchases by the US government there will be a decline in the dollar liquidity, in such conditions, the growth of cryptocurrencies will become difficult to maintain.

The Fed began discussing a gradual reduction in bond purchases and a move away from quantitative easing several months ago.. And so 4 October the Fed announced the launch of the Cone program, which involves a reduction in dollar liquidity due to a gradual reduction in the volume of government purchases of bonds. According to forecasts, it will start in June next year. But now more and more regulators are in favor of its speedy launch.

Lee explains, that the current Fed policy is aimed at localizing the consequences of the pandemic, uses quantitative easing, which consists of injecting liquidity into banks through continuous purchases of bonds, forcing banks to provide loans even at zero interest rates, thereby increasing liquidity in the market. The more bonds are bought, the greater the Fed's assets. Hence, quantitative easing is an unconventional policy, applied, when interest rates cannot be reduced.

Study author explains, that Bitcoin's growth is associated with changes in interest rates and weakening economic policies, which the US and other governments have undertaken, to save the market during the COVID-19 pandemic. But with interest rates coming up, this bubble, caused by rising stocks and price surges in cryptocurrencies, may burst next year.

The study says, what if the process of reducing bond purchases accelerates, then the decline in the cryptocurrency market will occur even faster. Famous investor and economist Louis Navellier (Louis Nallier) also thinks, that there is a significant bubble in the stock market, this could lead to a strong correction in risky assets. In his opinion, in this case, Bitcoin could fall to $10 000. Last month, all the experts said, that the reappointment of Jerome Powell as Fed Chairman will allow the bulls to maintain their previous strategy of investing in cryptocurrencies, and this will have a beneficial effect on the market.