Market Musings

Bitcoin Will Have a ‘Major Problem’ When Fed Stimulus Ends

Published on:
January 12, 2021

Some analysts believe the Fed is prematurely warning that crisis measures will end to stop a bubble forming in Bitcoin.

Bitcoin Will Have a ‘Major Problem’ When Fed Stimulus Ends

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Although Bitcoin managed to shrug off some short-term turbulence on Tuesday, a much bigger cloud may be forming on the horizon.


According to Bloomberg, officials at the U.S. Federal Reserve are increasingly mentioning that quantitative easing measures designed to tackle the economic impact of COVID-19 could be “tapered” soon.


In an opinion piece, Brian Chappatta warned that the Fed’s remarks may be designed to stop the bubble that’s forming in Bitcoin’s price as well as in Tesla shares — with the stock markets increasingly being compared to a “lucky slot machine.”


One key factor in Bitcoin’s price surge may be linked to quantitative easing, which effectively involves printing money on an unprecedented scale. This increases the number of dollars in circulation, causing the currency’s value to fall. Such measures have drawn investors toward BTC because of how it has a fixed supply of 21 million.


Speaking to Forbes’ Billy Bambrough, economist and crypto trader Alex Krüger said:

“[Tapering] would be a major problem for the price of Bitcoin as it would diminish the macro and institutional demand.”

Bambrough noted that there is precedent for markets “throwing a tantrum” when central banks turn the taps of economic support off — and such turbulence was seen in 2013 as the Fed attempted to take a step back following the end of the financial crisis.


Although “tapering” measures aren’t expected this year, it will happen eventually. All of this does raise the question of what will happen to Bitcoin prices when stimulus measures are eventually withdrawn — and whether the crypto markets will be strong enough to survive.


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