Bitazza Crypto Weekly: How Will The FED Balance Sheet Reduction Impact Bitcoin? -

Crypto Weekly: 10 – 16 January 2022

Minutes from the Federal Reserve FOMC meeting revealed that officials are ready to begin dialing back monetary policy aggressively. Notes revealed that one key focus of the discussion is reducing bond holdings in the coming months in order to reduce the Central Bank balance sheet.

News of the almost-unanimous agreement to start the balance sheet runoff forced heavy sell-offs in conventional financial markets as well as the digital asset market as investors and traders brace for a more aggressive FED. Fears regarding the anticipated shrinking balance sheet coupled with surging inflation have led many to raise concerns about the FED taking liquidity out of the markets.

It is apparent that Bitcoin has significantly benefitted from Quantitative easing and liquidity injection, with the commonly held belief that Bitcoin will remain an effective hedge against inflation further driving demand for BTC. However, with the FED preparing to raise interest rates and implement stricter monetary policies, some investors are beginning to question whether Bitcoin will continue to beat inflation at the rate that it has done so in the past.

Ethereum co-founder Vitalik Buterin has stated that he believes that the network is “50% of the way there” to Ethereum 2.0, pointing out critical milestones such as Beacon Chain and the London hard fork as key strides forward for the network over the past year. It has been six years since Ethereum began its development towards ETH2.0, wherein the network will make the complete transition from proof-of-work to proof-of-stake, as well as increasing scalability, bandwidth, and transaction throughput.

Meanwhile, Solana has announced that the Solana Network is experiencing degraded performance due to the increase in computed transactions on the platform. This has caused the originally cited network capacity of 50,000 transactions per second (TPS) to plummet to only several thousand TPS during this down period. This announcement marks the second instance of degraded network performance this week alone and will be a crucial area of focus for Solana developers moving forward.

Interestingly, a spokesperson from PayPal has confirmed that the payments system leader will be looking to expand its Crypto business. Hidden code in PayPal’s iPhone app has revealed that the company is developing its own USD-backed stable coin dubbed “PayPal Coin” that will look to bring faster transactions with a lower barrier-to-entry to its users. PayPal is not the only business looking to grow into the Crypto-space; however, with leading accommodation-booking platform Airbnb potentially starting Crypto payments on their platform soon. Airbnb’s CEO, Brian Chesky, has publicly stated that Crypto payments are the number one most requested feature by users leading many to speculate that Airbnb could soon be accepting Crypto in 2022.

South Korean electronics manufacturing giants Samsung and LG Electronics have announced official plans to begin introducing Smart TVs with NFT support and capabilities to the market. The TVs will support an NFT marketplace, where users can buy, sell, and view NFTs directly from their TVs at home.

However, Samsung’s interest in the Metaverse isn’t stopping there. The South Korean tech company has also announced its partnership with Decentraland to launch Samsung’s first Metaverse store modeled directly after its flagship New York store. This led to a brief short-term jump in price for MANA and other NFT Game tokens.

Weekly Technical Analysis: 10 – 16 January 2022

Bitcoin (BTC)

BTC’s short-term trend is still bearish, with the support level falling to the $40,000 mark this week. This support is expected to remain intact for some time; however, BTC will have to start creating higher highs and lift its floor before entering an uptrend. The first resistance level BTC will have to break through to enter an uptrend is at $45,000.

Ethereum (ETH)

ETH’s short and medium-term outlook is bearish like BTC. If support at $3,000 cannot remain intact this week, it is unlikely that ETH will be able to manage a successful upwards reversal in the short term. If support can remain intact, ETH may trend sideways for some time until it can successfully challenge resistance at $3,800.

Chainlink (LINK)

LINK is up by 31.2% over last week, with the Oracle platform token managing to recover into an uptrend. In the short term, traders can use the support at 880 Baht as an entry point when prices dip. LINK will look to test resistance at 1,280 Baht, LINK’s previous high before a correction.

Band Protocol (BAND)

BAND has begun to rally alongside fellow Oracle token LINK. Whilst BAND faced significant sell-offs during its rally if support at 260 Baht can remain intact, BAND still has a chance to return to test its previous high at 370 Baht.

Trading and Investment Considerations For The Week

This week, traders and investors must keep an eye on macroeconomic factors, with the FED’s anticipated reduction of its Balance Sheet and tighter monetary policy potentially having a significant impact on the Crypto market moving forward.

Regardless, this may only be a short-term issue for the Crypto market. Even with stricter monetary policies in place, the exponentially rising inflation rate is unlikely to be resolved quickly or easily any time soon. This is supported by how close the FED balance sheet is to the $7 Trillion mark at the moment.

Bitcoin’s price is expected to recover once the market acclimates to the announcements from the FOMC meeting. However, one key issue that could potentially have more lasting ramifications for Bitcoin and the entire Crypto market is the question of Stablecoin regulation. If regulators begin cracking down on Stablecoins in earnest, we will likely see negative effects across the whole market.

Bitcoin has a critical support zone between $37,500 to $40,000. If this support can remain intact, Bitcoin’s long-term uptrend has the chance to continue; however, if prices fall through support, Bitcoin will enter a clear Bear trend, with the rest of the market likely following in its wake.

Traders and investors are advised to invest no more than a third of their portfolio into the digital asset market at this time and to wait for Bitcoin to enter a short-term bullish reversal before entering any positions. The downside risk is significant at the moment, and a Bear market could prove costly if investors try to catch a falling knife.

Tokens that power Oracle protocols like Chainlink and Band have attracted interest and funds from the market entering this week, likely a result of the growing interest in Web 3.0. Oracle protocols will be an integral part of building the Web 3.0 infrastructure and enable Web 3.0 projects to query and use real-world data in DApps. Oracle protocols’ use cases and potential applications make the underlying tokens that power them particularly interesting, and investors are advised to keep a close eye on them moving forward.

*Materials on Bitazza Weekly Newsletter are intended to be used and must be used for informational purposes only. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily represent those of Bitazza and its employees. The information contained herein is not intended to be a source of advice or financial analysis with respect to the material presented, and the information and/or documents contained in this website do not constitute investment advice.

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