Fed’s Quantitative Tightening: A Threat To Bitcoin’s Bull Run?

Jan. 28, 2023
Fed’s Quantitative Tightening: A Threat To Bitcoin’s Bull Run?

Bitcoin bulls may not have to wait long for the US to start printing money again, according to a recent analysis of U.S. macroeconomic data. Sven Henrich, the founder of NorthmanTrader, predicts that the Federal Reserve will have “no choice” but to end quantitative tightening (QT) in order to avoid a “catastrophic debt crisis.

Henrich points to a chart showing interest payments on current U.S. government expenditure, which is rapidly approaching $1 trillion annually. 

This staggering number results from the U.S. government debt surpassing $31 trillion, coupled with the Fed’s continuous printing of trillions of dollars since March 2020. It has led to a 42% increase in interest payments, according to Henrich.

The impact of these interest payments has not gone unnoticed in the crypto community. Twitter account Wall Street Silver notes that in 2022, the U.S. paid $853 billion in interest for its $31 trillion debt, which is more than the defense budget for 2023. 

If the Fed continues to keep rates at current levels or even raises them, interest payments could reach as high as $1.2 to $1.5 trillion.

Good News For Bitcoin Bulls

This potential debt crisis could spell good news for Bitcoin bulls. Historically, periods of “easy” liquidity have corresponded with an increased appetite for risk assets in the mainstream investment world. 

However, the Fed’s unwinding of this policy coincided with Bitcoin’s bear market in 2022, leading many to believe that a “pivot” in interest rate hikes could signal the return of favorable market conditions for crypto.

However, Arthur Hayes, ex-CEO of BitMEX, disagrees that the impact of quantitative tightening (QT) on risk assets, including cryptocurrencies, will be positive. 

He predicts that chaos will occur first, leading to new lows for Bitcoin and alternative coins, before any recovery can take place. He argues that if the Federal Reserve runs out of options to prevent a meltdown, the damage will have already occurred before QT shifts to quantitative easing.

It means that those who are buying risky assets now could be in store for significant losses in performance. Hayes predicts that 2023 could be just as bad as 2022 until the Fed makes a pivot.

Bitcoin Bullish At $23,000

Bitcoin continues to thrive, remaining “bullish” at $23,000, according to on-chain metrics from market cyclist and on-chain analyst Cole Garner. In a recent preview, Garner revealed backtested and validated Bitcoin trading tools that signal continued growth for the cryptocurrency.

Source: Tradingview

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One metric, which compares the ratio of BTC to stablecoins across exchanges, has hit multi-year highs, surpassing peaks from early 2020. This high stablecoin liquidity suggests continued bullish behavior, with funds waiting to enter the Bitcoin market.

Garner stated, “they are looking so bullish right now. It is rarely ever wrong.” Despite some speculation of a significant BTC price correction, these on-chain metrics paint a positive picture of the future of Bitcoin.

Ammar Raza

Associate editor
Skilled in crafting compelling content, with a deep enthusiasm for blockchain technology. I offer precise and easily comprehensible perspectives on cryptocurrencies, decentralized finance, and the ever-evolving landscape. Count on me as a reliable resource to remain informed about the latest advancements in the world of crypto.