A report published by the Huobi Research Institute, an investigative agency of the Asian Exchange, studied the impact that the upcoming Fed policy changes may have on cryptocurrency prices. The report titled “Taper Landed: A turning point in the cryptocurrency market is coming” pointed out that due to the upcoming contraction, the continued growth of high-risk assets (including cryptocurrencies) may be difficult to sustain.
Huobi report examines the Fed’s shrinking effect
Latest news from Huobi Research Institute report, Titled “Taper Landed: A turning point in the cryptocurrency market is coming”, determined the possible route that cryptocurrency prices might take due to the Fed’s curtailment actions. A gradual reduction—that is, the continued decline of dollar liquidity in the market due to reduced bond purchases—may have a negative impact on the growth of Bitcoin and other assets.
this Taper The discussion started a few months ago. According to research forecasts, with the reduction in bond purchases and the end of quantitative easing (QE), it may begin in June next year. It is expected that this reduction will not only hit Bitcoin, but also high-risk assets first, and its impact will be transferred to more mature assets later.
Inventory to end of flow
“Taper Landed” is also on the famous Inventory to flow (S2F) model, which predicts the increase in Bitcoin price based on its availability and output in the market. The report was written on November 24 and predicted that the model would fail because of its limited consideration of economic factors surrounding Bitcoin. William Lee of Huobi Research Institute explained:
Why did the “victorious” Bitcoin S2F model suddenly fail? Because Plan B only considered Bitcoin’s monthly SF ratio and historical Bitcoin price data when constructing the model, while ignoring the impact of external macro changes on the market.
Lee further explained that the increase in Bitcoin prices is related to the economic policy relaxation adopted by the United States and other governments, ostensibly to save the market during the coronavirus pandemic. But the report says that the bubble of stock growth and rising cryptocurrency prices may burst next year as the so-called shrinking begins, and the upcoming interest rate hikes that usually follow the shrinking period.
The study concluded that if the taper process accelerates, these effects may be felt more quickly in the market.
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