Bitcoin (BTC) and the Whole Market Reacted With a Drop to the Possible Fed’s Balance Sheet Cut

Bitcoin (BTC) And the Whole Market Reacted With a Drop to the Possible Fed's Balance Sheet Cut

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Bitcoin plunged below $43K, followed by all large-cap altcoins dropping by an average of 10%. All this happened after it was reported that the Fed was discussing the possibility of reducing the balance by $8.3 trillion.

Experts say bitcoin is up 60% in 2021 as funds use cryptocurrencies as a hedge against inflation. Huge inflation was the result of more than $4 trillion in money printing in order to support the economy amid the pandemic. Inflation in the United States at the end of the year really turned out to be a record in 30 years. Now, however, if the Fed is going to cut the balance sheet, the dollar will strengthen and bitcoin will no longer be a hedge.

The decision to cut the balance is still being discussed by officials, but even the Fed’s intentions are putting downward pressure on the cryptocurrency market. It is stated in the published minutes of the meeting on December 14-15 that:

– …Some participants judged that a significant amount of balance sheet shrinkage could be appropriate over the normalization process, especially in light of abundant liquidity in money markets.

Earlier, the fall in bitcoin and the whole market was inspired by a message from Fed Chairman Jerome Powell that the rollback of the quantitative easing program will happen faster than planned. It was also reported that rates may rise faster than expected in 2022. This is now confirmed in the published minutes:

– Participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.

The downward pressure on the bitcoin price is also exerted by political events in Kazakhstan. Since the beginning of the year, there have been massive protests in this country against the government. This may affect the decrease in the bitcoin hash rate, according to the report of the analytical service BitMEX Research. Large mining farms were moved to Kazakhstan after the mining ban in China. In August 2021, Kazakhstan took second place in the world in bitcoin mining.

According to technical analysis, the BTC collapse may continue to a strong support level of $40K. Earlier, right after the Fed meeting, popular trader Tone Vays supposed that bitcoin could correct up to $20K. At the same time, the expert remained optimistic about the leading cryptocurrency in the long term.