Bitcoin[1]‘s current price struggles are no secret to the cryptocurrency sector as the top asset continues to bleed red almost three weeks into the new year. It has lost 11% of its valuation over the past month, leading many experts to believe that the bears have settled in.
Much of the downtrend has been triggered by renewed fears of tapering from the Federal Reserve, which has been reeling with record-high inflation in the United States. In a report[2] by IntoTheBlock, analyst Lucas Outumuro opined that the possibility of a decrease in the dollar’s monetary supply through quantitative tightening could spell disaster for the asset.
An inflation of fear
This is because Bitcoin’s limited supply positioned it as a hedge against inflation, which largely contributed to its recent rise in popularity amid rising inflation. The Fed eased its hawkishness in 2021 following the lockdown-induced economic slowdown and stimulus packages aided investors in allocating to Bitcoin.
However, as fears of inflation continue to rise, a reversal on the same is expected.
Source: IntoTheBlock
Outumuro pointed out in his report that a similar trend was noticed in Bitcoin’s price movement in 2018 when inflationary pressures and monetary supply decreased.
This correlation between the monetary supply change and Bitcoin’s price has been increasing since then, recorded at a high level of 0.77 in the report.
Source: IntoTheBlock
If the monetary supply decreases going forward, as has been recently indicated by the Fed, Bitcoin’s future outlook could turn increasingly bearish. This is because investors would once more shift focus from risky assets like crypto and equities.
Out flow the bulls
This has already been seen playing out in Bitcoin’s trade statistics, as the crypto-asset registered outflows in four out of the five past weeks, totalling over $317 million. Total AUM
