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Quantitative Tightening and its Implications for Crypto


Quantitative Tightening

The United States has initiated a move called quantitative tightening (QT), which may put an end to a decade of unprecedented growth in the crypto market. The initiative will see the Fed shrinking its balance sheet monthly for the next three months by $47.5 billion. This implies that by September this year the balance sheet may shrink by nearly $95 billion and by the end of 2023, be reduced to $7.6 trillion.

Economic analysts, financial investments and crypto analysts have conflicting opinions, with some observers holding the belief that this initiative could hurt the crypto market and could cause a downturn or a recession in the sector.

In the year 2020, the opposite of this initiative was enacted, and was named quantitative easing (QE) or money printing. This had a drastic effect on the crypto market which burst from $162 billion to its peak of over $3 trillion in late November 2020. When the Fed balance sheet increased from $4.17 trillion to $8.95 trillion, as of June 2022, observers were witnessing the fastest upsurge recorded since the last global financial crisis of 2008.

Nigel Green, CEO of advisory firm deVere Group expressed that due to the unexpected rate at which the Quantitative Tightening initiative is being implemented, there is a possibility that the market might experience minimal effects, as many investors would begin to restructure their portfolio to capitalize on this new development.

Green further explained that during the adoption of quantitative easing there was an increase in wages of workers, especially in the hospitality industry in the US, adding that QT could possibly present people with the same opportunity and advantage. If this is true then the new initiative might yet be a good practice to adopt.

In the same light, crypto analysts have spoken out, saying that if large entities still have cash in their coffers after implementing the initiative then the crypto market might benefit greatly from quantitative tightening.

Featured Image: DepositPhotos © sinenkiy

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