Bitcoin prices maintain relative stability even as Fed policy creates headwinds

Bitcoin prices have continued to trade within a relatively tight range recently, holding their value even as Federal Reserve policy threatens risk asset values.

The world’s best-known digital currency, which has a total market capitalization of nearly $375 billion at the time of writing, has been trading reasonably close to the $20,000 level since last month, CoinDesk data shows.

The cryptocurrency has experienced some price fluctuations recently, but these movements have been modest.

On Friday, for example, bitcoin fell 2% after the latest jobs report from the US Department of Labor showed that the country’s employers added 263,000 positions in September, a result that exceeded expectations, according to CoinDesk.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

That day, the digital asset fell to about $19,400 on CoinDesk, before recovering to about $19,600 later.

Yesterday, the cryptocurrency saw more light volatility, falling below $19,300, before bouncing back and surging above $19,500 today.

Fat austerity

The latest jobs numbers put further pressure on Fed policymakers to continue their aggressive rate hikes and asset sales.

Since March, members of the Federal Open Market Committee have increased the target range for the federal funds rate by 300 basis points in an effort to bring red-hot inflation under control.

During this time, they have chosen to make three separate interest rate increases of 75 bp.

As of this writing, the target range is between 3% and 3.25%.

Higher interest rates make yield-bearing securities, such as bonds, more compelling to investors, potentially reducing the relative appeal of risky assets such as stocks and cryptocurrencies, which do not provide regular payments.

Fed Asset Sales

Furthermore, the central bank has been selling assets from its balance sheet, initially offloading these at a rate of $47.5 billion per month in June and accelerating this regime to $95 billion per month starting in September.

That balance peaked in value at about $9 trillion in April 2022, according to figures from the Federal Reserve’s website.

As the Fed continues to unload these assets, it is shrinking the size of the money supply, a development that some have described as taking away the proverbial punch bowl that has helped put upward pressure on the price of risky assets.

The value of many cryptocurrencies and stocks rose significantly during the pandemic, as government stimulus checks went toward investment.

The price of bitcoin, for example, approached $70,000 late last year.

But as the money supply shrinks, it will reduce the funds that market observers can spend on risky assets.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.