[Bitcoin Now] US Fed Tightens Money Supply...? Plunges to 52 Million Won Range

FOMC Mentions Quantitative Tightening
Bitcoin Fell 5.52% on the 13th Last Month Ahead of FOMC

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] The leading cryptocurrency Bitcoin has plummeted to the 52 million KRW range. The more hawkish stance of the U.S. Federal Reserve (Fed) than expected acted as a negative factor. A hawkish stance refers to a preference for tightening policies when the economy overheats.

According to the domestic cryptocurrency exchange Upbit, as of 2:41 PM on the 6th, Bitcoin recorded 52.86 million KRW, down 1.85% from the previous day. It has been declining for five consecutive days since the 2nd, including a 3.87% drop the day before. The highest price Bitcoin recorded this month is only 58.3 million KRW.

The sharp drop is interpreted as due to concerns that the Fed might tighten monetary policy faster than expected. On the 5th (local time), the Fed released the minutes of last month's Federal Open Market Committee (FOMC) meeting. According to the minutes, most members expected the conditions for raising interest rates to be met quickly. Furthermore, some members said that interest rates should be raised immediately after the end of asset purchase tapering. Last month, the Fed announced it would advance the tapering process from June to March.

FOMC members also discussed further liquidity withdrawal through quantitative tightening. Quantitative tightening refers to the Fed not reinvesting in bonds it holds when they mature, thereby not supplying liquidity to the market. It is a stronger policy than tapering, which reduces asset purchases but continues to supply liquidity to the market.

There is also a possibility of further decline. On the 5th, U.S. economic media Bloomberg observed, "Bitcoin fell more than 20% in early last month due to the new COVID-19 variant Omicron," and predicted, "The Fed's monetary policy will continue to shake the cryptocurrency market."

The cryptocurrency market surged as governments around the world significantly increased liquidity in response to COVID-19. On March 13, 2020, Bitcoin fell to 5.48 million KRW due to the COVID-19 shock. However, as liquidity was actively supplied, it rose more than tenfold over the course of a year. On the 13th of last month, ahead of the FOMC, concerns about liquidity reduction surfaced, causing Bitcoin to plunge 5.52%.