The mass printing of banknotes by the Fed has accelerated inflation, driving the prices of cryptocurrencies to rebound. Bitcoin and other crypto-assets could see a much higher adoption by citizens and governments in the coming years.
The price of Bitcoin (BTC) fell to its lowest level this month, after the last meeting of the US Federal Reserve (Fed). In December, the officials discussed reducing the government agency’s hefty 8.3-trillion-dollar balance sheet.
The Fed has printed more than USD 4 billion to support the economy and markets affected by COVID-19 in recent years. However, that has accelerated inflation, leading cryptocurrency prices to rebound. A growing number of investors were confident that Bitcoin would serve as a hedging asset against rising prices.
For that reason, a corrective move by the Fed to reduce the balance sheet could push Bitcoin and other cryptocurrencies lower.
The minutes of the Fed meeting state that some participants deemed a significant contraction of the amount of balance sheet appropriate. They consider it would help the market normalization process, mainly due to the high liquidity in monetary markets.
Despite obstacles from regulatory institutions, the price of Bitcoin gained around 60% in 2021.
Bitcoin Outperformed Capital Markets in 2021
Goldman Sachs recently said that Bitcoin currently holds a 20% share of the entire store of value market. To do that, it takes as a reference the market capitalization of almost USD 800,000 million of the pioneering cryptocurrency.
The leading investment company said that Bitcoin could become a higher share over time.
Younger investors seem to be moving away from gold to get closer to Bitcoin. For that reason, the precious metal appears to be losing its dominance somewhat as it only registered a return of 4% during 2021. That situation has led many analysts to refer to the first cryptocurrency on the market as digital gold.
Bitcoin and other cryptocurrencies could have an even better performance in the market in the coming years. There has already been a high adoption of crypto assets by citizens and governments in various countries. Additionally, the non-fungible token (NFT) and decentralized finance (DeFi) sectors grew exponentially during 2021.
Although most countries adopt Bitcoin optimistically, government regulations will hamper its development. If the threat of regulatory uncertainty disappears, the pioneering cryptocurrency could see much more significant growth during 2022.
Bitcoin is currently trading at around USD 43,716 and has accumulated a 5.4% loss in the last 24 hours. Its daily trading volume is above USD 31.91 billion, and its market capitalization is about USD 827.15 billion, according to CoinGecko.
Bitcoin currently plays a crucial role in the global economy, which leads a growing number of people and institutions to become interested in it. The exponential growth that the pioneering cryptocurrency had in 2021 is proof of the trust it generates. Of course, it is only a matter of time before it reaches and exceeds its previous all-time highs.
By Alexander Salazar