Why is the bitcoin price falling so much?
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The price of Bitcoin is also being affected by policy changes by the U.S. Federal Reserve. Federal Reserve Chair Jerome Powell said in December last year that the Federal Open Market Committee (FOMC) would double the monthly rate at which it reduces asset purchases. The Federal Reserve is now purchasing $20 billion less of U.S. Treasury securities each month and reducing by $10 billion each month its purchases of U.S. agency securities.
In his post-meeting press conference on Jan. 26, 2022, Powell indicated that the FOMC will adhere to the bond purchase schedule that it announced in December 2021. While the fed funds rate is being kept near zero for now, developments related to inflation may change that. Keeping elevated inflation levels from becoming “entrenched” remains a key focus for the Fed.
Measures enacted by the Fed that are designed to control inflation have had a negative impact on the price of Bitcoin. The values of risky assets—like Bitcoin—tend to decline in the wake of the Federal Reserve making policy changes to become more fiscally conservative.
More broadly, as Bitcoin matures and becomes more widely adopted, the price of Bitcoin is increasingly correlated with the prices of traditional assets like stocks. This growing correlation means that any event that triggers price declines in the traditional markets is likely to trigger similar or greater price declines for Bitcoin.