Federal Reserve Will Cut Bond Purchases By $120B A Month. BTC Slides With S&P500
The benchmark cryptocurrency fell along with risk markets as investors focused on the U.S. dollar.
On Thursday, the price of bitcoin (BTC) briefly dropped below $44,000 as the U.S. dollar rallied following the release of Federal Reserve minutes showing the Fed’s intention to cut its bond-buying program this year.
Bitcoin is now facing a new barrier level of $45,000.
The spot currency, BTC/USD, fell 1.71 percent to hit a new low for the week at $43,955.
The latest drop is believed to be part of a technical correction that began after the price hit a three-month high of $48,176 on Saturday.
This drop-in bitcoin price is consistent with similar market shifts on Wall Street. For example, the Standard & Poor’s 500 indexes fell 47.81 points, or 1.1 percent, to 4,400.27 in the final hour of trading Wednesday.
The Dow Jones Industrial Average and the Nasdaq Composite were down 1.1 percent and 0.9 percent, respectively.
CNBC’s pre-market data also showed that futures linked to Wall Street indices fell on Thursday, meaning the market could still fall after New York’s open on Thursday.
Meanwhile, the U.S. dollar index (DXY) was affected by the dangerous market decline. The index, which measures the dollar’s strength against major currencies, fell slightly after rising 0.39 percent to a six-month high of 93.50.
Warning of cuts
The U.S. Federal Reserve agreed to scale back its $120 billion monthly Treasury and mortgage asset purchase program, according to minutes of its July 27-28 meeting released Wednesday.
Most central bankers agreed that the steady recovery of the U.S. economy was a good enough reason to reduce the pace of asset purchases.
However, they did not say when they would start to cut back, even though there are only three Federal Open Market Committee (FOMC) meetings left this year.
Officials also agreed that scaling back asset purchases would allow them to raise interest rates if the economic recovery continues as expected.
The minutes indicated that they would like to see more evidence that the labor market has recovered from the COVID-19 outbreak.
As for inflation, the minutes showed that Fed policymakers are expecting a temporary recovery.
The recommended inflation rate, which excludes the volatile food and energy categories, was 3.5 percent in June, the highest level in 30 years, but they expect consumer price inflation to decline, citing it as temporary.
Is the bullishness becoming fatigued?
Excessive bond purchases have pushed the U.S. government interest rate down to 0.66% in 2020. Even with the rally seen in early 2021, yields remain at historically low levels.
This trend has been seen around the world, with negative interest rate debt recently reaching US$16.5 trillion, the highest level in six months.
Falling returns have triggered a series of rotations in the stock market, with indices hitting new highs. The S&P 500 index rose 19.01 percent to a lifetime high of 4,480.26, while the Dow Jones rose 16.30 percent to a lifetime high of 35,369.87.
Bitcoin became a safe-haven alternative to the U.S. dollar and gold in 2020, rising in tandem with the S&P 500.
It hit an all-time high of about $65,000 in 2021, and experts attribute the Federal Reserve’s accommodative monetary policy as a major factor in the price rise.
The big question, however, is whether the policy retreat will cause capital outflows from markets that flourished on quantitative easing, especially the bitcoin market, which has risen more than 1,000 percent since the Fed’s soft policy in March 2020.
By ezphoto – shutterstock.com