Cryptocurrencies have had a crazy 2022 with many of them crashing during the most recent bear market. Not only the crypto market is affected. The stock market has also been suffering heavy losses this year. Some of this bearish behavior of the markets has to do with the quantitative adjustment of the Federal Reserve.
Cryptocurrencies have been involved in a hurricane of positions that have made them the trading platform bitcoin up most volatile financial investment instruments in history for a year that has not started precisely as expected. With such a revolutionized financial market and the constant economic measures that arise around it, Bitcoin and other cryptocurrencies are subject to evaluation from an investment perspective.
The market may continue in a bearish phase, but, as everything is possible, the forecasts of many specialists who assume that cryptocurrencies will increase their value as of the second half of 2022 may come true.
What does a quantitative adjustment refer to?
The Fed’s measures have begun to tighten since the US economy is not giving the expected responses, a crisis that, unfortunately, is affecting all markets. A constant fight that brings the United States together with the Central Banks against the increase in interest rates and inflation seems to have no end. As a result, the FED now proposes that the federal reserves should be reduced until they reach 7.9 million Dollars.
But what does this quantitative adjustment, known by its acronym QT, refer to? This financial and economic strategy is based on reducing the issue or supply of money, thus contributing to the increase in interest rates in a predictable way. The main impact of these measures is on financial markets and stocks, as yields decline in the face of runaway inflation.
This measure comes at the wrong time since investors in both cryptocurrencies and stocks are disappointed by a situation increasingly strangling the country’s economy, finances, and, in a certain way, the world. Although this measure has not been implemented very often, economists assume that with a reduction in liquidity, inflation may be limited and begin to decrease.
The decrease in the issuance of bonds and other treasury instruments, as well as less printing of traditional currencies, dramatically benefits the cryptocurrency market.
Financial changes that can benefit cryptocurrencies
The effects of this quantitative adjustment measure may be seen by mid-June when sales of Federal Reserve bonds begin to enter the country. On the other hand, there is the fact that workers in retail stores and hotels have increased their income, which, in the face of a possible reduction in liquidity, would have greater capacity in terms of capital to invest.
Although BITCOIN trend records have never responded positively to this type of measure, many investors tend to accumulate their crypto assets to wait for the best trend for sale. Many specialists on cryptocurrencies, such as Nigel Green, assume that we could be facing a possible rebound trend where cryptocurrencies could be considered a refuge value.
With salary increases, people can have their capital to make investments in cryptocurrencies; that is where investors must diversify their portfolios. Although Bitcoin has suffered drastic drops in value, it is being evaluated and considered by many as a valuable reference asset. The printing of money executed by the Federal Reserve has been disproportionate since the Covid-19 pandemic, now is the time to limit it.
The solution against inflation may be approaching, but the markets are highly vulnerable; what is expected is that these measures will not continue to affect the development of cryptocurrencies to the point of leading them to financial suffocation. The tightening of financial measures could further complicate the situation of these digital assets. Still, their decentralization could be strengthened and change the economic turn, involving more users in future investments.
These 15 days that are about to pass are crucial, which is why it is suggested to evaluate each day with great caution, as well as the various market factors since, at this point, everything is correlated. The war between Russia and Ukraine, the constant financial measures of the FED, and the oil prices are the most impacting factors in economic history and their effect on the crypto market.
Conclusion
Cryptocurrencies and altcoins could mark a drastic turn in finance and investment. Investors’ eyes tend to always be on the side of solid movements and changing trends in the financial market. In such a vulnerable situation, nothing is safe for any financial markets; it is necessary to make decisions with caution.