US Federal Reserve sends Bitcoin into correction mode

“Inflation is good for Bitcoin”, “Inflation is bad for Bitcoin”. While the store of value narrative can hardly be fleshed out in light of Bitcoin’s disinflationary monetary policy, fears of rising inflation are more likely to cause short-term price declines. This was confirmed once again by the last meeting of the FOMC of the US Federal Reserve (Fed), whose minutes were published yesterday, Wednesday, April 6.

In it, the Fed offers the prospect of further tightening of monetary policy. For example, monthly bond purchases of up to US$95 billion will expire from May without new purchases being made. This, coupled with advance statements by Fed board member Lael Brainard that the key interest rate would be raised as much as 0.5 percentage point, triggered a sell-off in capital markets.

Fed Board Member Lael Brainard in front of the US Senate in January 2022. Source: Picture Alliance

However, it is questionable whether these stumbles towards tight monetary policy will allay inflation fears in the long run. The Fed’s total assets are still hovering around $9 trillion. That’s about ten times the 2008 total.

However, the markets had discounted the so-called “minutes” quite quickly. Tech stocks in particular lost after the announcement; the Nasdaq100 index is down 2.2 percent at the time of this writing (pre-market).

BTC-ECHO price analyst Stefan Lübeck sees the sell-off in the stock market as just a temporary trend:

The tightening of monetary policy is likely to have a negative impact on the stock market development in the medium term and thus could weigh on the cryptocurrency market as well. Historically, however, this negative price development was only temporary. In the long term, stock markets have been in a consistent upward trend in the past, despite interest rate hikes by central banks.

Stefan Lübeck, BTC-ECHO Market Expert

Bitcoin also leaves feathers

The US Federal Reserve is also taking down the cryptocurrency market. At $2.09 trillion, the broader market bounced just below the psychologically important $2 trillion mark and thus lost billions of dollars in the triple-digit range. With the market in general, the feed is also separated from Bitcoin in the short term. On a 24-hour basis, BTC is down 4.3 percent in value and is trading at $43,385 at press time.

However, on-chain data tends to paint a positive picture, so expect a short-term reprieve here. For example, the outflow of coins from large exchanges such as base of coins Y binance far. This indicates increased hodl activity from bullish Bitcoiners.

It is not yet possible to foresee how Bitcoin will develop in the long term in an inflationary environment. Editor Nicola Hahn has examined two scenarios in detail – they’re well worth a read!

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