On The Brink...

Crypto-brothers and sisters are panicking all over the world as Bitcoin has broken the $45,000 support line. As I'm writing this, Bitcoin's price stands just above $43,000 and it doesn't look like this downward spiral is going to slow down...

I normally don't write about Bitcoin's current price developments, for reasons that should be obvious, mainly because the price is so volatile. Today I'll make an exception though, and maybe this short post will cool down sentiments somewhat. There has been no news or FUD to cause such a downturn in Bitcoin's price, so what's going on here? You see, it's not just Bitcoin and altcoins that are crashing right now; it's all markets. The reason for this worldwide panic in all stock-markets is that today the American Central Bank, the Federal Reserve or FED, has released the minutes of their December meeting, and the announcements therein caught investors by surprise. So, here's why I think Bitcoin's price has dropped some $3,000 in a day...

If you've been following my blog, or any other outlet that tries to keep you informed about the insanity in the world of politics, finances and trading, you know that this has been coming for a while now. The Federal Reserve, the European Central Bank and others have been printing money like there's no tomorrow for the duration of the Covid-19 pandemic. Interest rates for borrowing money have been hovering around zero percent in America, and some Central Banks (the European Central Bank and the Bank of Japan) even had negative interest rates on occasion. The reason for this unprecedented run of money-printing is of course to keep the economy afloat during extensive periods of lock-downs, and the consequent huge reduction in economic activity all around the world. But this is just half of the story about how the world's stock-markets became addicted to extremely low interest rates and stimulus...

In fact this has been going on for more than a decade; since the economic meltdown of 2008 to be precise:

Between December 2008 and December 2015 the target rate remained at 0.00–0.25%, the lowest rate in the Federal Reserve's history, as a reaction to the Financial crisis of 2007–2008 and its aftermath.
_{source: Wikipedia}

When the Federal Reserve, or any Central Bank for that matter, wants to reduce interest rates they will increase the money supply by buying government securities, such as bonds or treasury bills. So these past years the FED has been on a bond-buying-spree. Last year we've seen many articles about the danger of inflation related to the explosive growth of the money-supply, and Federal Reserve chairman Jerome Powell said that the central bank shifted its first projected rate increase from 2024 to 2023. But chances are, going by the minutes released on Wednesday 5 January 2022, that these rate increases could come this year.

"This money supply growth is just so much faster than anything we've seen," said Desmond Lachman, resident fellow at the American Enterprise Institute. "It's a reflection of a huge amount of pent-up demand in the economy... it's difficult for me to see how you don't get inflation."
_{source: Reuters - June 17, 2021}

To be honest, we've all seen this coming, and also I believe that the markets are over-reacting right now. Don't get me wrong; we are on the brink of this huge bubble bursting wide open. And when it does, you'll be glad you held on to your Bitcoin and altcoins. So, watch the below linked video, but also try not to panic too much just yet; the FED won't suddenly stop buying bonds in March like it's said in the video, but instead it will start tapering of its balance sheet, something that's been announced a while back already. As I'm writing this last paragraph of today's post, I see that Bitcoin's price is above $43,500 so maybe sentiments are already starting to simmer down. Whatever happens, we live in exciting times and it'll be mighty interesting to see where all this is going. Anyway, here's an article about the just-released minutes from the Federal Reserve's December meeting: Federal Reserve puts wheels in motion for balance sheet reduction.

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