Federal Reserve's $22 trillion shift may boost or crash Bitcoin

Bitcoin, the world's largest cryptocurrency by market capitalization, is currently facing a significant potential shift due to the Federal Reserve's monetary policy. The Federal Reserve's monetary policy has long been a critical factor influencing the price of Bitcoin. The central bank's decisions on interest rates, quantitative easing, and other measures can significantly impact the value of the cryptocurrency. According to analysts, the Fed's recent actions and future plans could lead to a massive $22 trillion price earthquake, which could either boost or crash the price of Bitcoin.

The potential $22 trillion price earthquake is a result of the Fed's plans to reduce its balance sheet and raise interest rates. The central bank has been purchasing assets to support the economy during the pandemic, but it is now looking to unwind these purchases. This process, known as quantitative tightening, could lead to a significant reduction in the money supply, which could in turn drive up the price of Bitcoin as investors seek safe-haven assets.

However, the Fed's actions could also have the opposite effect. If the central bank raises interest rates too quickly, it could lead to a recession, which could cause the price of Bitcoin to crash. Investors may become risk-averse and sell off their Bitcoin holdings in favor of more stable assets. The increase in the M2 money supply comes as Fed chair Jerome Powell continues to argue the case for keeping interest rates on hold.

Historically, the bitcoin price has tracked the M2 money supply, which is the Federal Reserve’s estimate of liquid assets, including cash, money deposited in checking accounts, savings accounts, and other short-term saving vehicles such as money market funds. "As M2 money supply begins to rise again, history suggests that a portion of this liquidity will flow into bitcoin and other digital assets," Matt Mena, crypto research strategist at 21Shares, said in emailed comments.

If bitcoin continues to follow money supply growth, we could see $150,000 per coin before year end," Anthony “Pomp” Pompliano, a crypto influencer who’s set to lead a new bitcoin acquisition company, wrote in an emailed note. The bitcoin price has shot higher over the last few years, climbing alongside the U.S. M2 money supply.

The potential $22 trillion price earthquake highlights the importance of the Federal Reserve's monetary policy for the cryptocurrency market. Bitcoin's price is highly sensitive to changes in the money supply and interest rates, and the Fed's actions could have a significant impact on the value of the cryptocurrency. Investors should closely monitor the central bank's decisions and be prepared for potential volatility in the market.

The potential $22 trillion price earthquake also underscores the need for investors to diversify their portfolios. While Bitcoin has the potential for significant gains, it is also subject to high levels of volatility. Investors should consider allocating a portion of their portfolio to other assets, such as stocks, bonds, and real estate, to mitigate the risk of a sudden price crash.

In conclusion, the Federal Reserve's monetary policy is a critical factor influencing the price of Bitcoin. The potential $22 trillion price earthquake highlights the importance of the central bank's decisions for the cryptocurrency market and the need for investors to diversify their portfolios. While the outcome of the Fed's actions is uncertain, investors should closely monitor the central bank's decisions and be prepared for potential volatility in the market.