On June 1, local time, the Federal Reserve will officially start “quantitative tightening”, tapering at a pace of $47.5 billion per month, and will gradually raise the ceiling of tapering to $95 billion per month within three months.
The crypto market has been in turmoil since the Fed started to raise interest rates during the year, what impact will the current round of tapering have on it?
Tom Matthews, communications manager at Australian cryptocurrency exchange Swyftx, said the tapering will have a negative impact on the crypto market.
“You’re likely to see a slight dip in the total market capitalization of the crypto market.” He said, “With the Fed tapering its balance sheet harder and faster than analysts expected, it’s hard to imagine that this won’t have some kind of impact on investor sentiment.”
Tom Matthews believes bitcoin could benefit from this despite the turmoil in the crypto market. “Bitcoin’s market cap is 47% of the total crypto market cap, up 8 percentage points from the beginning of 2022.”
Crypto investor CryptoWhale expressed similar sentiments on social media. He noted that historically, bitcoin has never entered a bull market during a Fed taper. “A huge collapse (in Bitcoin) is inevitable.”
Driven by massive liquidity, the total crypto market cap soared from $162 billion in March 2020 to $3 trillion in November 2021, but has slipped to $1.3 trillion heading into 2022.
However, some analysts believe that tapering will have little impact on the crypto market. Nigel Green, CEO of financial advisory firm deVere Group, believes the crypto market will have little reaction to the taper because (the event) is “already fully priced in by the market.”
As of writing, bitcoin prices were at $31,500 and ethereum prices were at $1,900.