Bitcoin falls as Fed Chair says inflation isn't 'short-lived,' as previously thought.
The U.S. Federal Reserve under the leadership of Federal Reserve Chair Jerome Powell appears to be rethinking its monetary policy, which could hurt speculative assets like bitcoin.
After Federal Reserve Chair Jerome Powell said Tuesday that it may be time to retire the term "transitory" as a way of describing inflation, Bitcoin and the US stock market both fell.
Federal Reserve Chairman Jerome Powell and other central bank officials have frequently used the term "coronavirus-related lockdowns" to indicate that consumer prices may begin decreasing in the coming months as the economy recovers from these shutdowns.
As a result, Powell's shift in messaging during his testimony before a Senate panel could signal that authorities now see inflationary pressures as lasting longer – potentially indicating that the central bank is less willing to continue the loose monetary policies that have buoyed markets for risky assets, including cryptocurrencies.
At a hearing before the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke said, "It is time to retire the word 'transitory' regarding inflation."
As of the time of this writing, one bitcoin price had dropped to $57,000, from a high of $58,500 just before the hearing began.
When Bitcoin hit $68,000 for the first time, it set a new record for the year's highest point. By the beginning of December, it had fallen below the $46,000 mark once more.
After starting the year at a low of just under $30,000, Bitcoin's price has surged to a new all-time high. Every day, and even every minute, it fluctuates in price. This month, the price of Bitcoin has fluctuated from $45,000 to over $59,000. For the first time since Dec. 12, it returned above $50,000, and it has fallen below $46,000 several times in recent weeks.
Many experts believe that Bitcoin is on its way to surpassing $100,000, despite the volatility. Cryptocurrency's volatility is nothing new, and experts advise new investors to be extremely cautious when allocating a portion of their fortune to cryptocurrency.
As with all other cryptocurrencies, the value of Bitcoin has steadily increased over time. Investors in Bitcoin are understandably interested in seeing how far the currency can rise.
Unlike more well-established asset classes, the price of Bitcoin is notoriously difficult to gauge and even more vulnerable to market fluctuations than the stock market itself.
Cryptocurrency bitcoin as an inflation hedge
Many investors see the largest cryptocurrency, Bitcoin, as a hedge against inflation because of the programming built into the underlying blockchain that controls supply. It's a stark contrast to the Federal Reserve's monetary policies, which have grown its balance sheet to $8.7 trillion, more than double what it was at the beginning of this year.
However, because of bitcoin's reputation as a high-risk asset, some traders believe that loose monetary policies encourage investors to place larger speculative bets. Bitcoin could benefit from a reversal of these "dovish" policies.
According to Powell and other Fed officials, the central bank intends to "taper" its $120 billion monthly bond purchases by $15 billion per month.
The announcement was interpreted as recognition by officials that action must be taken quickly to curb inflation.
In October, the rate was 6.2%.
According to Federal Reserve officials, rising consumer prices since April are due to "transitory" factors that are expected to dissipate once the economy returns to its pre-recession state.
The closely watched Consumer Price Index rose 6.2% in October from a year earlier, indicating that inflation is still rising. Economic experts warned that the price rises would continue for the foreseeable future after the highest rate in three decades.
For the Senate hearing, Powell had prepared remarks in which he stated that "the majority of forecasters — including those at the Federal Reserve — continue to expect that inflation will move down significantly over the next year as supply and demand imbalances diminish."
To avoid an inflationary overshoot, Powell acknowledged during the live hearing on Tuesday that economists have recently predicted that the Fed may need to accelerate the tapering of its monthly bond purchases. Dec. 14-15 is the date of the final monetary policy meeting of the year for the US central bank.
There will be a discussion about whether to end the purchases a few months earlier when the Federal Reserve meets again in a couple of weeks, Powell said Tuesday, according to Bloomberg News.
Omicron and bitcoin
Powell addressed concerns about the recently-emerging omicron coronavirus variant in prepared remarks.
According to Powell, it "now appears that factors pushing inflation upward will linger well into next year" despite the fact that supply constraints are difficult to predict. There is also less slack in the labor market and wages are rising at a rapid pace because of the improvement in the economy.
While rising prices could help bitcoin's appeal as an inflation hedge, the Federal Reserve's more hawkish monetary policy could pose a challenge.
What Bitcoin Price Predictions Investors Should Know
Financial advisors and other industry experts advise against making investment decisions based on your emotions, as they do with any other type of investment. Dollar-cost averaging is a strategy used by investors who contribute to passive index funds and ETFs on a regular bregularlyeir long-term performance.
Investing in cryptocurrency shouldn't account for more than five percent of your overall portfolio. You should also never invest in cryptocurrency at the expense of saving for emergencies or paying down high-interest debt. People who invest in low-cost index funds and other forms of diversified portfolios, rather than solely in cryptocurrency, are more likely to achieve long-term wealth and retirement savings success.
Most people are unfamiliar with crypto, so it's fine to take your time before putting any money on the line. Cryptocurrency price predictions are based on only a few years of data, and the value of Bitcoin is highly volatile on a day-to-day basis.
It's difficult to understand your crypto strategy's "what" and "why" because of the volatility. What are your goals and why are you participating in this volatile market before investing in Bitcoin or any other alternative asset? That will help you keep your mind on the task at hand.