Huobi Research: “Monetary policy tightening” paints a bleak picture for cryptocurrencies

A report from the Huobi Research Institute – an Asian stock market research organization – examined the impact of upcoming policy changes by the US Federal Reserve (Fed) on cryptocurrency prices. The report, titled “Right Monetary Policy: The Tipping Point of the Crypto Market Is Coming,” states that the impending contraction in monetary policy makes it difficult to sustain the steady growth of currencies. .

Report from Huobi Consider influence of decided to change the guideline of fed

report The latest from Huobi Research creates a possible roadmap for crypto prices as a result of the Fed’s actions. Tightening monetary policy means continuously reducing US dollar liquidity in the market due to lower bond purchases – which can negatively affect the growth of Bitcoin and other assets.

This topic was discussed many months ago. The study predicts it could begin next June, when the government cuts bond purchases and ends quantitative easing (QE). This is expected to affect not only Bitcoin but risky assets first and then older assets.

Put an end to the model Stock-to-flow

In addition, the Fed’s decision is also a “huge blow” to the famous stock-to-flow (S2F) model. This model predicts the price of Bitcoin based on the amount available and produced in the market. The report, written on Nov. 24, predicts that this model will fail because it does not fully take into account the economic factors surrounding Bitcoin. William Lee of Huobi Research explains:

“Why did the“ glory ”Bitcoin S2F model suddenly fail? Because PlanB only takes into account the monthly SF exchange rate and historical price data for Bitcoin when building the model, but ignores the effects of external macro changes on the market.

Lee went on to explain that bitcoin’s price spike was due in part to easing economic policies by the United States and other governments, ostensibly to save the market during the coronavirus pandemic. But with contraction and rate hikes ahead, often followed by periods of contraction, a bubble in stock growth and crypto bulls could burst next year.

The study concluded:

“If policy contraction accelerates, these effects could soon be felt in the market.”

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