Commentators believe Bitcoin (BTC) bulls won’t have to wait long for the United States to start printing money again.
The latest analysis of US macroeconomic data has prompted a market strategist to predict an end to quantitative tightening (QT) to avoid a “catastrophic debt crisis”.
Analyst: Fed will have ‘no choice’ on rate cuts
The Federal Reserve continues to withdraw liquidity from the financial system to fight inflation, reversing years of COVID-19-era money printing.
While rate hikes are expected to continue to taper off, some now believe the Fed will soon have only one option – to halt the process entirely.
“Why the Fed will have no choice but to cut or risk a catastrophic debt crisis,” says Sven Henrich, Founder of NorthmanTrader summarized on January 27th.
“Longer higher is a fantasy not rooted in mathematical reality.”
Henrich uploaded a chart showing interest payments on current US government spending, which is now skyrocketing to $1 trillion a year.
A staggering number, the interest comes off over $31 trillion in US government debt, with the Fed printing trillions of dollars since March 2020. Since then, interest payments have increased by 42%, Henrich noted.
The phenomenon has not gone unnoticed elsewhere in crypto circles either. Popular Twitter account Wall Street Silver likened the interest payments to a portion of US tax revenue.
“The US paid $853 billion in interest on $31 trillion in debt in 2022; More than the defense budget in 2023. If the Fed keeps interest rates at that level (or higher), we will pay $1.2 trillion to $1.5 trillion in interest on the debt,” it says wrote.
“The US government collects about $4.9 trillion in taxes.”
Interest rates on US national debt chart (screenshot). Source: Wall Street Silver/Twitter
Such a scenario could be music to the ears of those with significant exposure to Bitcoin. Periods of “light” liquidity have been accompanied by an increased appetite for risky assets in the mainstream investment world.
The Fed’s reversal of this policy accompanied Bitcoin’s 2022 bear market, and a “tipping point” in rate hikes is therefore seen by many as the first sign of “good” times returning.
Crypto pain for pleasure?
However, not everyone agrees that the impact on risky assets, including crypto, will be consistently positive before then.
Related: Bitcoin ‘so bullish’ at $23,000 as analyst reveals new BTC price metrics
As Cointelegraph reported, ex-BitMEX CEO Arthur Hayes believes chaos will come first, propelling Bitcoin and altcoins to new lows before any sort of long-term renaissance begins.
With the Fed facing a complete lack of options to avoid a meltdown, Hayes believes the damage will be done before QT gives way to quantitative easing.
“This scenario is less than ideal because it would mean that anyone buying risky assets now would face a massive performance hit. 2023 could be just as bad as 2022 until the Fed turns around,” he wrote in a blog post this month.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.