The situation in financial markets, especially the so-called risky asset markets, which include the stock, commodity and cryptocurrency markets, depends on what is happening in the global economy. When the economy is stable and doing well, investors invest in both risky assets to generate income and risk-free assets so that available capital doesn’t lie idle but doesn’t suffer from inflation. Risk-free assets include government or corporate bonds and bank deposits. In calm times inflation is usually at an acceptable level, which can be covered by interest on deposits and bonds.
In crisis and post-crisis periods, such as now, the inflation rate is higher than usual, and so deposits and bonds cannot cover it. Accordingly, investors tend to put their capital where the potential income covers inflation and allows them to earn something on top, i.e., in risky assets: stocks, cryptocurrencies, etc.
During a crisis, only the Central Bank of the state can stabilize the situation and support the economy. The various instruments of monetary and fiscal policy are used for this purpose: reduction of credit rates, QE program (quantitative easing), tax benefits and loosening, payments to the population and other incentives. A soft monetary policy is popularly called a “printing press. There is more money circulating, and the result is a devalued currency/inflationary increase.
To prevent the terrible effects on the economy of a pandemic, the world’s leading central banks have turned on the “printing press” at full power, on an unprecedented scale. Much of the “new money” has been spent by investors and ordinary citizens to buy stocks, cryptocurrencies and other assets in order to protect them from inflation and make money.
On September 22, the U.S. Federal Reserve met and announced plans to begin tightening monetary policy starting in November 2021: cutting the QE program and emergency stimulus, as well as raising lending rates already in 2022. Tighter monetary policy in the coming years will lead to a stronger dollar, lower inflation and higher bond and deposit yields. Investors in anticipation of this announcement began to partially divest from risky assets and move into risk-free assets. It was amid expectations of tighter monetary policy that risky asset markets fell, including cryptocurrencies, as all the capital earned on risky assets during the soft monetary policy can gradually be transferred to risk-free assets and thus save money.
Can BTC fall to $30K or lower?
The fact is that statements of plans to tighten monetary policy do not mean it will really start to tighten in November. It depends on the unemployment rate, the inflation rate, and in general on the dynamics of economic recovery. If the situation continues to improve, they will be tightening, and if the situation remains the same or starts to worsen, the terms of tightening will be postponed.
Simply put, investors have 2 months to spare in order to hold their money in risky assets and earn more, especially as inflation is still relatively high and there is no hurry. As soon as they actually announce the start of tightening, then risky assets will start to decline impulsively. As bitcoin has been firmly entrenched among the assets in which everyone invests, from small to large, there is no reason for the continuation of the fall so far. At least until the November meeting of the U.S. Federal Reserve, when they will definitely announce the beginning of tightening (or not). In addition, in order to get to $30,000, bitcoin needed to break down the $40,000-$42,000 range. It was not possible to do it, because in this range buyers were happy to collect cheaper everything that was offered, taking advantage of the decrease.
What are the important levels for BTC right now?
Right now, it is important for bitcoin to overcome the range of $49,000-$50,000, because a breakdown of this zone will cancel the scenario of the fall, which began on September 7, when the price fell from $52,000 to $42,000 in a few hours. After the break-down of this range, the price will move to test the level of $54,000, and if it breaks through it, it will open the road for the renewal of the historical maximum around $65,000. Supporting the price right now is the $40,000-$42,000 range.
Will there be a new rise in bitcoin?
Bitcoin still has quite strong upside potential. Even if monetary policy actually begins to tighten, it will still remain soft for a few more years from what it was before the pandemic. It is an opportunity for investors to continue to make money, but most of the capital will no longer go into risky assets, so the growth dynamics of stock, commodity and cryptocurrency markets will decrease, but they will still continue to grow slowly. Today, bitcoin has all chances to gradually reach the historical maximum and update it. Accordingly, if that happens, the price could reach $70,000 and possibly $75,000. However, this will largely depend on how the global economy develops further and whether monetary policy will actually be tightened. If the tightening deadline is moved in November, bitcoin could rise even more in December.