Quantitative Easing

Bitcoin: this federal action could contribute to the failure of the Plan B model

The next holiday season should be a time of joy, but the crypto market is down and inflation is on the rise. Meanwhile, Huobi Research recently published an article on the Taper phenomenon and how it could affect the price of Bitcoin in a way that few people have considered.

T meets B

At the start of November, the Federal Reserve announced that it would cut back or “cut back” on asset purchases. That would be a reduction of $ 15 billion per month. During the COVID-19 pandemic, maintaining a larger Fed balance sheet was one way to support the U.S. economy. However, crypto-investors should keep in mind the impact this could have on the global crypto market.

In particular, the Huobi Research report warned that the Fed’s action could cause the Plan B Bitcoin stock-flow model to fail. The anonymous Bitcoin model creator S2F previously estimated that Bitcoin would reach a price of 98. $ 000 before the end of November.

Alas, the Huobi Research report replied,

“Why does the ‘victorious’ Bitcoin S2F model suddenly fail? Because PlanB only considered Bitcoin’s monthly SF ratio and Bitcoin’s historical price data when building the model, but ignored the impact of external macro changes in the market.

Here it is essential to note that Plan B uses not a, but Three models to predict the price of Bitcoin. In addition, plan B clarified that November’s $ 98,000 forecast is based on its floor model – a model that uses price-based technical analysis, and not its S2F model.

The chronology of the cone

Despite this, the report from Huobi Research suggested that the pace of the reduction would have a particularly noticeable effect on risky assets such as Bitcoin, making it difficult to rally them. According to author William Lee, for example,

“On November 19, a number of senior Federal Reserve officials hinted that they might speed up the Taper process. Speeding up the Taper means accelerating the withdrawal of QE [quantitative easing], which means that the liquidity turning point will be advanced.

Lee concluded,

“Therefore, under the influence of market expectations, it is difficult for various high risk assets, represented by Bitcoin, to continue to rise in the future, and even the possibility of a further decline cannot be ruled out. “

Source: Huobi Research

The aforementioned report also looked at the past actions of the Federal Reserve to understand how previous incidents of reduction correlated with the decline in the price of Bitcoin.

Plan B is expressed

In the past, Plan B has pointed out that it could be wrong when it comes to predicting Bitcoin’s price movements. On November 23, Plan B share an article about low Bitcoin prices and claimed the market was scared. His Tweeter also suggested that it could be related to Mount Gox.

In fact, according to a recent Reuters report, many are worried about the impact of huge volumes of Bitcoin on the market if Mt. Gox’s creditors are repaid.

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