Sirwin
Sirwin

Central Banks to Revive Economies Soon

By idiosyncratic | Idiosyncratic Crypto | 23 Sep 2023


The central banks have been increasing the interest rates to slow down the economies as they deal with the "global" inflation problem due to the deep Quantitative Easing (QE) process. Starting from Covid-19, the central banks printed and gave away trillions of dollars and the price of everything inflated as expected.

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However, for a very long time, the central banks played the card of interest rate hikes as well as Quantitative Tapering (QT) to both settle down the velocity of money and decrease the amount of money in circulation.

For crypto enthusiasts, we can see QT as a buy back and burn program for a coin while interest rate hikes can be depicted as higher borrow APR for a stablecoin to get debt. Naturally, these two parameters will have a profound impact on the value and the supply of the currency.

Central Banks' Weekly Balance Sheet

If you are following the markets, you are aware of the importance of being on the market in a *QE term. While money is printed every single day, you should have enough assets to sell people with a bunch of newly-printed money. This is the best time of the market.

However, during a QT, the best option is looking for strong resistance levels to short* the assets. It is always better to follow the trend rather than fighting against it 😉

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Yardeni

The FED has been following a dedicated QT trend since 2022. You will notice a sudden spike in the QT2 phase. It was the time when the banks started to fall and the markets were in need of some more liquidity.

QT and high interest rates may affect the markets negatively when they are combined. However, as a result of this action, the FED was able to lower the circulation of money by making it more valuable.

What about the other Central Banks?

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Once again, you will spot a similarity between the actions of the FED and other central banks such as European Central Bank and Bank of Japan in terms of the time they decided to start following a QT program and the global markets felt the results of the actions deeply.

When the growth rates where learned, we saw that Germany economy stagnated as it got harder for economies to grow when the price of currencies increased with interest rate hikes and QT actions.

QT to Boost Markets

Yeah, not all markets are in the same situation with crypto. However, the strong QT program eventually hits the markets. Either the markets start going sideways and accumulate power for a break out in any directions or the drops may start to take place.

When you just focus on these two charts, you notice that QE is an important factor for any market to test higher highs. As investors of crypto and commodities, we are looking at the charts to have an idea about the next actions of central banks.

Many economies expect softer QT or the start of QE in the first quarter of 2024. If the markets, once again, float with very high volume, the prices are likely to go higher. There are not many options for the central banks to control the economy without hurting the companies and people.

Either in Q4 2023 or in Q1 2024, we will start to see green crypto with stronger support lines and new investors with high-risk appetite. Wait for central banks to be "softer" to protect the markets.

What do you think about the central banks' operations?

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idiosyncratic
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