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Following the simple rule of economics, the Federal Reserve is going to apply Quantitative Tightening that will reduce the liquidity and affect the cryptocurrency market
Since the news about Quantitative Tightening by the Federal Reserve broke out, experts and analysts have their own divided opinions about the same. One of the major concerns the experts have about cryptocurrencies is that if Quantitative Tightening comes into effect, it will severely impact bitcoin and other cryptocurrencies.
Several reports are that the Federal Reserve is looking to start the process of cutting off its overly filled out balance sheet in recent years that went up to a staggering $9 trillion by using an effective move of Quantitative Tightening (QT). People from the crypto space have concerns that there are possibilities that the Quantitative Tightening that the Federal Reserve is going to launch on June 1 would let a decade of growth that crypto markets experienced like never before come to an end.
If Quantitative Tightening is somewhat new to you, it’s quite the opposite of the term Quantitative Easing, generally known as money printing. Since the start of the Covid 19 pandemic, the Federal Reserve has engaged in the procedure of printing money. As per the conditions under Quantitative Easing, the FED follows the procedure of adding bonds and other treasury instruments under its balance sheet if more money is managed to get printed or distributed.
Reportedly, the Federal Reserve is planning to cut off $47.5 billion every month from its balance sheet for the upcoming three months, followed by a $95 billion reduction from September for the next three months.
The Federal Reserve plans to reduce its balance sheet by approximately $7.6 trillion by the end of next year. It’s a huge amount of money that is being planned to cut off from the market and could result in a significant gap in liquidity. Among the most conflicting opinions, the manager at Swyftx, Pav Hundal, said that Quantitative Tightening could negatively impact the crypto market.
On Wednesday, the manager of the Australian crypto exchange said that there are possibilities that the growth of market capitalization of the market could be seen trimmed slightly. The Fed is reducing the assets fastly and trying hard for it more than the expectations of many analysts. It’s quite evident that it’s going to make some impact on general traditional sentiment across the crypto market.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
