Currently, everybody is talking about this bull run what price Bitcoin and Ethereum can hit next. I am also one of the people who like to speculate about that and it brings me joy to see the prices of these assets go up. But there is this feeling, like somebody is watching us from a mile away, like Michael Mayers just to hit us in a time where nobody is expecting it to happen. In this article we will discuss this event and how it might be inevitable.

The Inevitable Event

Since the pandemic started trillions of dollars were flooded into the markets. Not only the crypto market but also the stock market and the housing market saw a big uptrend over the past 1.5 years. It almost seems like we are untouchable right now. Not even the infrastructure bill influenced the prices. It even gave BTC a boost upwards. But when greed is at its highest and you get hints from every single TikToker about the next ShibaInu you should know that something is not right.

It looks like the one thing that could crash all the markets now is the Federal Reserve. Last week it announced that it will be reducing its purchases of government bonds. For those who don’t know: Interest rates for saving and borrowing are determined in large part by the demand for government bonds. If demand for government bonds is high interest rates are low. And if demand for government bonds is low interest rates are high.

With this explained, the Federal Reserve has been buying 120Billion dollars worth of government bonds every month almost since the pandemic began. This helped to keep demand for bonds high and interest rates low. This helped the economy and the overall markets because low interest rates incentivized individuals and institutions to borrow and spend. The big problem now is, that the borrowed money to invest is at an all-time high. Now that the Federal Reserve has begun tapering, which means reducing the purchases of government bonds, the interest rates should be increasing. This means that all those who have borrowed money and hold assets in overleveraged positions might have to sell all their assets to be able to afford those higher interest rates and cover their monthly debt payments.

The individuals would sell all the risky assets first and that woold mean that crypto assets like BTC and ETH would be the first to go. This would lead to a panic sell off which would drop the crypto market for sure. More importantly, the reason why the Federal Reserve is rising the interest rates is because of runaway inflation. This could turn into hyperinflation if nobody changes anything. This means that if inflation would be get under control, the inflation hedges like Bitcoin would become obsolete which would be another reason to sell BTC.

Conclusion

This whole scenario sounds pretty scary and it could lead to a massive panic sell off in the markets. Especially, with news around that there would be taxation on unrealized capital gains which would lead to individuals like Elon Musk selling 10% of their shareholder position just to cover the tax expense. On the other hand, history suggests that these kind of taperings don’t last long. This is because after massive corrections in the stock market the Federal Reserve turn the money printer back on and buy government bonds again. With this in mind, I would suggest that the upcoming crash will be a hard and short one. This would be an excellent opportunity to restock the positions in the projects that you really believe in and hold them as assets.

What do you think? Will the crash happen this year or will there be no crash at all?

Published by ga38jem on
Publish0x|LeoFinance|Steemit|read.cash
On 9th November 2021

Sources:
https://thehill.com/policy/finance/economy/579879-federal-reserve-announces-tapering-of-bond-purchases
https://cointelegraph.com/news/house-passes-1t-infrastructure-bill-with-crypto-tax-for-biden-s-approval
https://www.theguardian.com/technology/2021/nov/08/will-elon-musk-abide-by-twitter-poll-and-sell-10-of-his-tesla-shares#:~:text=Why%20did%20he%20do%20it,on%20%E2%80%9Cunrealised%20capital%20gains%E2%80%9D.