A report issued by the Huobi Research Institute, the investigative arm of the Asian exchange, examines the effect that upcoming changes of U.S. Federal Reserve policy could have on the price of cryptocurrencies. The report, titled “Taper Landed: The Turning Point of The Cryptocurrency Market is Coming,” states that due to the upcoming tapering, the continued growth of high-risk assets (including cryptocurrency) could be difficult to maintain.
Huobi Report Examines Fed Taper Effects
Huobi Research’s latest report, titled “Taper Landed: The Turning Point of The Cryptocurrency Market is Coming,” establishes the possible route cryptocurrency prices could take due to the action of the Federal Reserve taper. The taper — that is, the continual reduction of dollar liquidity in the market due to reduction in bond purchases — could negatively affect the growth of bitcoin and other assets.
The taper discussion started months ago, and according to study forecasts, it could start next June, with a reduction of the purchases of bonds and the end of quantitative easing (QE). This reduction is expected to hit not only bitcoin, but also high-risk assets first, and its effect to move down to more established assets later.
End of Stock-to-Flow
“Taper Landed” also takes a few jabs at the well-known stock-to-flow (S2F) model, which predicts the rise of bitcoin’s price based on its availability and production in the market. The report, which was written on November 24, predicted this model would fail due to its limited consideration of economic elements surrounding bitcoin. William Lee, of Huobi Research, explained:
Why does the “victorious” bitcoin S2F model suddenly fail? Because Plan B only considered the monthly SF ratio of bitcoin and historical bitcoin price data when constructing the model, but ignored the impact of external macro changes on the market.
Lee further explains that the growth in bitcoin’s price has to do with the loosening of economic policies that the U.S. and other governments undertook, ostensibly to save the market during the coronavirus pandemic. But with the start of the so-called taper, and the upcoming interest hike that normally happens after taper periods, this bubble in stock growth and cryptocurrency price hikes could pop next year, according to the report.
If the taper process accelerates, these effects could be felt even more quickly on the market, the study concludes.
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