2018 Data: Bitcoin Recovery Unlikely until the Fed stops reducing its balance sheet
Bitcoin Recovery is unlikely until the Federal Reserve stops reducing the size of its balance sheet. We have evidence from 2018 to support this argument.
Bitcoin Recovery Cues: Federal Reserve Balance Sheet in 2018
Beginning Feb 2018 and until August 2019, the Federal Reserve reduced its balance sheet from $4.4 Trillion to $3.8 Trillion (See Pic Below)
What happened to Bitcoin during this period?
Bitcoin began February 2018 at $9171 and then dropped to $3.2k by December 2018 (See Pic below). It then recovered from $4.1k in March 2019 to about $13k by June 2019.
It ended at $9.6k in August 2019 just before the balance sheet reduction stopped. A gain of $500 during the period.
The question is Why did Bitcoin begin to rise from March 2019 onwards?
An initial recovery began in March 2019 after the Fed announced that it would begin to stop reducing its balance sheet from September onwards. See pic below.
However, this Bitcoin recovery too the price to the same level as it was when the Fed began to reduce the size of its balance sheet.
Bitcoin took off from March 2020 onwards, rising from $6.4k to nearly $70k by November 2021. The Fed balance sheet expanded from $4.2 Trillion to $8.8 Trillion during this period.
Bitcoin Recovery Cues: Federal Reserve Balance Sheet in 2022
Let us look at how 2022 is playing out so far.
Firstly, Bitcoin responded fairly quickly to Inflation rising above 6% in November 2020 in anticipation of the Fed reducing its balance sheet again. Bitcoin fell from $67k in November 2021 to $47k in March 2022.
The Fed however began reducing the size of its balance sheet in April 2022.
What happened to Bitcoin?
- Between April 2022 and now, Bitcoin ranged between $47k and $18k. Bitcoin began April 2022 at $47k and is currently trading at $20k.
Unlike January and April where there was a high degree of volatility, Bitcoin has only trended lower or remained steady between April and September. (See pic below). There has been NO SERIOUS attempt to recover.
To Conclude: Bitcoin Recovery is unlikely until the Fed signals it is pausing the balance sheet reduction. The Fed is likely to do so probably after Inflation falls below 6%. This is in turn related to numerous factors both local and Global.
Note: Crowdwisdom360 collates Predictions and data from all over the net and has no in-house view on the likely trends in the Stocks or Crypto Coins. Please consult a registered investment advisor to guide you on your financial decisions.