What is the impact of macro factors on the price of Bitcoin under the expectation of large-scale shr

What is the impact of macro factors on the price of Bitcoin under the expectation of large-scale shr

The Fed recently released the minutes of its January 25-26 meeting. At the meeting, Fed officials laid out plans to begin raising interest rates and slashing trillions of dollars in bonds on the central bank's balance sheet, the minutes showed. Some officials at the meeting expressed concerns about financial stability, saying easy monetary policy could pose significant risks, saying interest rate hikes could come soon and the exit from bond portfolios could be "aggressive."

In addition, the committee laid out procedures on how to begin shrinking its balance sheet, and since the meeting, new inflation data showed U.S. prices rose at their fastest pace in 40 years. While no decisions were made on the specifics of the balance sheet reduction at the meeting, participants agreed to continue discussions at an upcoming meeting.

A research team led by JPMorgan Chase chief economist Bruce Kasman said in a recent research report that the Fed is expected to raise interest rates by 25 basis points at each of the next nine meetings, and the policy rate will be close to a neutral stance by early next year. . The biggest threat now is that central banks may change policy and see a need to slow growth, which could have implications for global financial conditions.

Specific to the crypto market, David Kelly, chief global strategist at JPMorgan Asset Management, said that as the Federal Reserve raises interest rates and ends the era of "crazy" speculation, cryptocurrencies may fall further.

The veteran strategist said the Federal Reserve's pandemic-era stimulus has forced bond yields to ultra-low levels, prompting investors to turn to highly speculative investments such as cryptocurrencies and unprofitable tech stocks. Investors have pulled back from riskier investments as the Federal Reserve prepares to raise interest rates several times in 2022 to curb inflation. Kelly believes that the recent market turmoil is not over and that digital assets are particularly dangerous because they are useless. These are illusory things that are vulnerable to rising interest rates.

Additionally, Barry Bannister, managing director and chief equity strategist at wealth management firm Stifel, believes that Bitcoin could drop to $10,000 by 2023. In a report to Insider, Bannister identified the global money supply, real 10-year yields, and equity risk premiums as three macro factors that could negatively impact BTC prices throughout the year and into 2023. The strategist said that these factors work in conjunction with the Fed’s monetary tightening and interest rate hikes, and the fundamentals suggest that Bitcoin will continue to decline.

In January this year, Federal Reserve Chairman Jerome Powell said the Fed would prevent high inflation from continuing. The post-pandemic economy will be different, and the Fed will have to adapt to these changes. In addition, US President Biden's three candidates for the Federal Reserve have all said that they will put the containment of high inflation in the United States a high priority. Three nominees, Jefferson, Cook and Ruskin, acknowledged the cost of high inflation on American households in remarks released on Wednesday on the eve of confirmation hearings for the Senate Banking Committee. Ruskin said low inflation is an important task for the Fed and a top priority for continuing the economic recovery. Cook said the most important task is to deal with inflation. Jefferson warned that persistently high price pressures could increase expectations for future inflation and that the Fed has a responsibility to bring inflation back to target.

Inflation and interest rates have a major impact on the overall economy, as they heavily affect employment, consumer spending, business investment, a stronger currency and the balance of trade. As a measure of money supply, M2 is a key factor in predicting issues such as inflation. Broad money supply (M2) refers to cash circulating outside the banking system plus corporate deposits, household savings deposits and other deposits. It includes all forms of money that may become real purchasing power, and usually reflects changes in social aggregate demand and The state of future inflationary pressures. In recent years, many countries have taken M2 as the control target of money supply. Previously, the economic impact of the COVID-19 pandemic and subsequent economic stimulus measures greatly increased the money supply.

If global money supply dynamics see a strong dollar slowing the global M2 money supply, the price of Bitcoin could fall, according to Barry Bannister. Another macro factor is rising 10-year real yields that could hold Bitcoin back. In addition, the third factor is "equity premium risk". As the U.S. central bank “continues” to raise interest rates, higher rates will raise the “equity risk premium,” implying a bearish outlook for BTC and a possible collapse of the S&P 500 and Bitcoin in 2023.

UBS analysts, led by James Malcolm, said the Federal Reserve’s rate hike in 2022 would reduce the attractiveness of cryptocurrencies such as bitcoin in the eyes of many investors. This is because rising interest rates will overturn the notion that Bitcoin is a good alternative currency or store of value. It stands to reason that things will get worse, leading to a “crypto winter,” in which assets slide and then fail to recover for an extended period of time. The last "crypto winter" occurred in late 2017 to early 2018, when Bitcoin fell from nearly $20,000 to below $4,000 and stayed below $4,000 for more than a year, causing many investors to lose interest in digital assets .

In addition to this, another issue that could lead to a significant price drop is the flaws in cryptography. For example, the development of blockchain technology is difficult because its decentralized design requires all members of the network to audit and verify transactions. The third issue is regulation. Rampant speculation on crypto networks “will inevitably lead to closer regulation to protect consumers and financial stability.”

In addition, mathematician Nassim Nicholas Taleb, author of books such as "Black Swan" and "Antifragile", slammed Bitcoin on Twitter, saying: BTC is not a hedge against inflation, nor is it a hedge company. Also, Bitcoin is not a hedge against geopolitical events, in fact quite the opposite, Bitcoin is the "perfect dummy's game" during low interest rates.

Brett Heath, CEO of precious metals firm Metalla Royalty & Streaming, believes that cryptocurrencies “could lead to the next financial crisis.” He said in an interview: “Looking back over the past few decades and looking at all the financial crises that have happened, they have a lot in common. One of them is a big awareness of a new financial product or technology that is not well understood. Adoption at scale.” Brett Heath went on to say that cryptocurrencies have become “a license for the private sector to print money.” While the U.S. dollar’s circulation has increased significantly since January 2020, the cryptocurrency’s market cap has “more than tenfolded.” He also said that Bitcoin’s limited supply of 21 million doesn’t really guarantee its “safe harbor” quality, as there are other “10,000 cryptocurrencies, related tokens that exist today.” Many cryptocurrencies also have numerous advantages over Bitcoin, Brett Heath said. With their creation, the entire crypto market will add billions of dollars and additional risks. While some cryptocurrencies will prevail, the vast majority of digital assets could still collapse.

Additionally, Bitcoin bulls are “facing a number of headwinds” as network data shows a bearish trend, according to a new report from blockchain analytics firm Glassnode. The researchers point to general weakness in mainstream markets as well as broader geopolitical issues as reasons for the current risk-off sentiment in crypto-asset markets, such as concerns about the Federal Reserve’s March rate hike and uncertainty over conflicts in places like Canada,” The likelihood of a more sustained bear market is also expected to increase.” Glassnode data shows that the number of Bitcoin active addresses or entities is currently at the lower end of the bear market channel, with approximately 219,000 addresses emptied over the past month, indicating a drop in market demand and interest.