I know you’re reading this article because you don’t know what the heck is happening to Crypto.

I was in your position some time ago so I decided to do my own research and am now here to share my knowledge with you.

If you have already done some Google search, you must have known by now that the ‘inflation narrative’ is killing the crypto market.

Everyone’s eyes are glued to the FOMC meeting where the Fed will discuss strategies on tackling inflation.

But you must be baffled by the variety of theses that analysts have come up with regarding the Fed’s possible actions.

It is difficult to predict which analyst is telling the truth and which one is trying to manipulate investor emotions.

In this article, I will analyse the analysis of analysts and leave it to you to decide what move to make in the crypto market.

Inflation and the Fed

By now, I’m sure you all trust Twitter founder, Jack Dorsey.

Or at least partially.

Hyperinflation may not be real, but inflation is dead real.

America just recorded its highest inflation since 1982.

This is where the Fed comes in.

According to the Federal Reserve of America, the Fed has four major responsibilities.

The first and foremost is:

Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.

Did you see those last two words — ‘Stable prices’?

Stable prices means a certain price level that is not too high to call it inflation, and not too low to call it deflation.

The Fed holds FOMC meetings eight times a year with an agenda that always includes stable prices.

If you want to learn more about the Fed and the FOMC meeting, I highly encourage you to read my article, ‘When Will the Crypto Market Stop Bleeding?’

Where did the Fed go wrong?

When COVID-19 was declared a global pandemic in March 2020, every country in the world went into lockdown.

As the active population couldn’t engage in economic activities, the economy started to shrink.

So, many countries found no option but to print more money despite severe warnings from economists.

The problem is that when a nation’s money supply growth outpaces economic growth, the result is ‘sustained inflation’ and the effect paints itself red on the financial markets.

We already saw hints of it when Bitcoin dumped to $39,650 on January 10 amidst rising fear among investors.

Daily trading volume in crypto markets has dropped to record lows as all eyes are on the next move of the Fed.

Analysis of analysts on FOMC Meeting

The crypto market will get a clear direction after the Fed’s upcoming FOMC meeting.

The meeting is scheduled to start on Wednesday, January 26 at 2:00 pm ET, followed by Powell’s press conference at 2:30 pm ET.

But, analysts are all over the internet with their own predictions:

1. The Fed will Introduce Quantitative Tightening !
2. The Fed will increase interest rate hikes 4 times this year !
3. The Fed will reduce Quantitative Easing !

My analysis

Let me start my analysis by analysing the analysts’ analyses.

1. The Fed will Introduce Quantitative Tightening !

This is the most dangerous tool the Fed can use to control inflation.

If we were in hyperinflation, it would make sense to go for the most extreme measure.

Although the current 7% inflation rate is the highest anyone has seen since 1982, it can still be controlled by a softer approach.

If the Fed decides to introduce QT and immediately starts selling government bonds and long-term securities in the open market, investors will start to dump their investments in the financial markets starting with cryptos as they are still considered the riskiest assets.

As the stock market signals the economic strength of any country, a completely bearish stock market will kill investor confidence and ruin the economy.

2. The Fed will increase interest rate hikes 4 times this year !

According to David Mericle, economist at Goldman Sachs, the omicron spread is aggravating price increases and could push the Fed into a faster pace of rate increases.

In his own words,

Our baseline forecast calls for four hikes in March, June, September, and December. But we see a risk that the FOMC will want to take some tightening action at every meeting until the inflation picture changes.

This was David’s worst-case scenario, but the media made it look like this was the only option the Fed had.

News like this was what created fabricated FUD and caused a massive dump in the financial markets.

If the Fed decides to increase interest rate hikes four times this year, this will cause a massive liquidity contraction, and deflation pressures will return sooner than expected.

3. The Fed will reduce Quantitative Easing !

This is the only prediction that makes sense, and will come true!

A well-paced reduction in QE is the only one way to effectively tackle inflation.

This is why the Fed already initiated it in November 2021. It began tapering its current bond-buying program by $15 billion a month. This means the Fed is now spending $105 billion a month rather than $120 million a month to purchase government bonds.

Then, in December 2021, the Fed decided to increase the reduction and make it $30 billion a month.

Reducing QE is a win-win strategy where the Fed will not only be able to drag inflation back to a healthy figure, but also be able to let the financial markets stay green and healthy.

Why I think the Fed will take a softer approach

From what I just wrote above, it’s already clear what my predictions are:

1. The Fed will NOT Introduce Quantitative Tightening !
2. The Fed will NOT increase interest rate hikes 4 times this year !
3. The Fed will CONTINUE reducing Quantitative Easing !

Now you need to read this to believe me.

1. Politicians’ big money is in the stock market:

   Insider trading has always been a dark side of the stock market.

   In recent breaking news, 54 members of Congress were reported to have violated a law designed to stop insider trading.

   Although Rep Michael Cloud of Texas is currently pushing two bills that could ban stock trading by members of Congress, insider trading has always been there and will always stay there.

   All the big money, retirement money, 401K, whatever you call it, is sitting in the stock market.

   If you look back at history, political strategy has always focused on ensuring the stock market never crashes.

   And now, the Fed is under enormous pressure to NOT destroy that stock market.

   2. The Fed needs to unwind its $9 trillion balance sheet

   The Fed has been buying up corporate bonds since the COVID crisis, and maybe even before that.

   If the Fed decides to raise interest rate hikes four times this year, it will ruin the financial markets and subsequently destroy the value of the underlying assets on the balance sheet.

   This will make it impossible for the Fed to unwind its $9 trillion balance sheet.

   If the Fed takes a hardline approach to tackling inflation, HOW will it unwind its $9 trillion balance sheet?

   3. Trade balance

   With the Evergrande crisis, China is forced to introduce Quantitative Easing. The European central bank is also going to inject more money into the economy.

   If the USA decides to raise rates when the rest of the world is dropping rates, it will mess up the trade balance.

    

    

   

   Currently, America’s trade balance is around $150 billion surplus with Europe while Europe’s trade balance is $180 billion deficit with China.

   It is clear that Europe is highly dependent on the USA.

   Now, all the USA wants is a weaker currency.

   That way, Europe will get its profit margin squeezed when exporting products to the USA.

   Sadly, that is the only hope for the USA now.

   Well, I hope you liked the way I analysed the analysis of analysts regarding the FOMC meeting.

   Now, it is your decision on how you digest my analysis and make your move in the crypto market.

   Best of luck!

   (Disclaimer: I am not a financial advisor. Please use my articles to educate yourself on cryptocurrencies, but not as a sole factor to influence you to blindly jump into cryptocurrencies.)