One of the contributing factors to the rise of bitcoin has been the $120 billion of monthly bond purchases.
Investors believe cryptocurrencies to be a safer option in the current market. The loose monetary policies are causing many fluctuations in the dollar value.
Earlier this year the U.S. Federal Reserve announced it is planning on taper the $120-billion-a-month purchases of bonds. This policy change is the first step toward slowing the money printing program. This money printing program was started as a response to the pandemic era economic slowdown. After the start of the program, many investors invested their assets in bitcoin as a hedge against inflation.
On Wednesday the Fed stated that from the start of this month the pace of asset purchases will be reduced to $15 billion a month. It also mentioned that the purchases of U.S. Treasury’s will have a $10 billion decline to $70 billion a month, while purchases of government-backed mortgage securities will have a 5 billion decline to $35 billion a month.
The U.S. central bank has left the interest rate near 0%. On the other hand, analysts are predicting that the Fed might have to start raising the benchmark rate, as an attempt to control inflation. These predictions are mainly due to the rise in U.S. consumer prices that have not been seen in three decades.
Outlook on bitcoin
After the statement the Bitcoin prices had a slight decline, however by the time of press, it regained its value to near $62,300. The reason for this decline is that the Fed’s decision was fully announced by officials before the start of the meeting. It is suspected that this decision was anticipated by the market.
Joe DiPasquale, the CEO of the cryptocurrency hedge fund BitBull Capital stated that as many investors use Bitcoin as a hedge for inflation, the tightened monetary policy can lead to the less rapid growth of bitcoin demand.
however, the largest QE in history can bring along the largest inflation in history, consequently. This is regardless of the Fed attempting to scale back. In which case the demand and prices for bitcoin will rise to a new all-time high.
An increasing group of high-level investors has been betting on bitcoin to be effective as a hedge against inflation. This rising suspicion on the value of bitcoin is due to the restrictions on the supply of bitcoin.