Let’s go back in time. It’s November 2021 and markets are roaring, especially crypto markets, due to rock bottom interest rates thanks to the Federal Reserve.
Cryptocurrencies were the talk of the town with some coins, like Dogecoin, exploding in value. Sports athletes, celebrities, and governments began advocating and even adopting cryptocurrencies as a means of exchange.
The party in crypto markets was fun while it lasted, then the Fed finally showed up. Better late than never, the Fed began a process know as quantitative tightening (QT).
The Fed announced QT policies in November 2021 which began with the tapering (buying less) of Treasury Securities and Mortgaged-Backed Securities (MBS). The Fed enacted Quantitative Easing (QE) in March 2020 where it purchased massive quantities of fixed income securities on the open market to prop up markets with liquidity and keep borrowing rates low.
The Fed continued QE policies through all of 2020 and most of 2021. The mere announcement that the Fed was going to start the process of QT collapsed crypto markets as fast at they roared up, making fools of the self-proclaimed geniuses that rode it to the top.
The above chart is two popular cryptocurrency ETFs.
- ProShares Bitcoin Strategy ETF (BITO – red line): down 75% over the past year.
- Bitwise 10 Crypto Index (BITW – orange line): down 85% over the past year.
Will cryptocurrency make a comeback?
Money Fad 