 The Fed has done it yet again. President Biden and Jerome Powell have been teaming up and tag teaming the markets ever since Biden took power. Since Biden has taken office, we've seen gas prices rise to record levels. Inflation is at its highest point in decades. We're on the brink of World War III and now the Federal Reserve is getting ready to dump its assets and balance sheets back on the market. All while also increasing the interest rates. So I honestly don't know where we go from here, but what I can tell you that it doesn't look pretty. We are literally on the path for destruction and chaos. Last time that the Fed was this hawkish and dumped its balance sheet on the market was back in 2018. And I'm sure you remember how bad the markets were back then. And that was with Trump as president tweeting every single day bullish news to try to push the markets back up. So just imagine how it could be with Biden. Today we're going to be talking about exactly what the situation is that we're facing here now with the Fed and how their decisions can critically impact the markets going forward. So let's go ahead and dive right into today's video. Hey, what's up Jay here and welcome to Bitcoin Daily bringing you guys the best tips, tutorials and ideas to help you guys become profitable and successful investors. The goal of this channel is to empower you, the community with the knowledge and resources to help you get to that next level. So if you guys are new to the channel, don't forget to subscribe, turn on notifications and smash that like button. If you have any questions about anything we covered here today, drop it in the comments. Let's dive into today's video. So for today's video, we will be looking at this thread made by Adam Cochran. I hope I'm saying his name right. He breaks, he breaks this down beautifully into that he breaks this down beautifully into very simple terms. And there's no way that I could have broke it down this simply. So we will be using his thread for this video. I recommend you guys to definitely give him a follow. So he made this thread after the FOMC minutes on Wednesday. And he breaks down exactly what it meant and why the markets have been reacting so bearishly ever since. So the main thing here is that one of the forms of measures that the Fed can do is raise rates in order to curb inflation. However, part of the problem of the inflation that's currently going on right now stems directly from the involvement of the Fed in the market, which is called quantitative easing, which basically means that the Fed buys assets from the market. So basically, they're just printing a bunch of money and throwing it back into the market to keep prices going up. So after quantitative easing for a number of years, now you have to basically back out of it. And that's called quantitative tightening. So there are two ways that the Fed can go about this. The first one is the less aggressive approach, which is to simply let the assets roll off its balance sheet. Essentially, this is choosing to not reinvest when an asset meets its maturity date. So for example, if you had a bond in which you had your money locked away in for a year, at the end of that year, you're not reinvesting your profits into it, you're taking your money out. Now, the second way to do this and the more aggressive approach is to sell off your assets into the markets. So yes, this gets the balance sheet normalized a lot quicker, but however, it drives down the prices of other assets. So in crypto terms, this is like having your funds invested in a pool or farming. And in the first scenario, all you're really doing is when you get your rewards, you're just claiming them and cashing out. You're not buying anymore. However, in the second scenario, you're selling your positions in these pools and farms at market price. And this is billions of dollars. So why are they doing this? Well, they've been so slow to react to the growing inflation that at this point, they're getting to basically the point where they don't have much other choice. This all, of course, started back in 2020 with the pandemic where they just printed tons and tons of money and they just been behind the curve ever since. We've really only had to deal with quantitative tightening in modern markets once, which was back in 2017, which was the result of the quantitative easing in 2013 and 2014. Look at this. During that time, the Fed had a balance sheet of around $4.5 trillion. Keep that number in mind because it's very important. Now, to start the quantitative tightening, the Fed slowly began to roll off bonds at $6 billion per month to a cap of $30 billion for bonds and $4 billion per month to a cap of $20 billion for MBS or mortgage backed securities. So this had a peak rate of around $50 billion per month. Plus on top of that, they had 25 basis point hikes or 0.25%. So only a year into that process in 2019, the Fed had to stop their quantitative tightening plans due to overly negative impacts on the market. The quantitative tightening was a major factor in our 2018 recession. And if you look at what happened during 2018 in the crypto market, it was not pretty. So where does this put us now? Currently, the Fed sits on $9 trillion in assets, which is roughly 36% of the US GDP, more than double of what we saw last time. They are targeting reductions in May looking at a runoff of $95 billion per month. So again, basically double what they were doing in 2018. And another thing that they mentioned was that the Fed was already considering 50 basis point hikes last time but held off due to the war in Ukraine, which would have been doubled what they actually did. This means that it is almost certain that we should expect a 50 basis points rate hikes moving forward each meeting. Last time in 2018 when we had the quantitative tightening, it was only 25 basis points. So we're literally doubling that number as well as doubling the amount of money that they're going to be dumping off in the markets. And then the Fed also said that it will be appropriate to consider MBS sales, mortgaged back security sales. That is a bold and hawkish statement. It's something that we've never seen as part of quantitative tightening and it was something a lot of the street was shrugging off. So now we may be facing not only the large hikes, but also balance sheet runoffs and mortgage back security sales. So all of those options are now on the table and being discussed. And as inflation continues to run really, really hot, they might all just become an inevitability. The other point is that this particular Fed in this overly political climate has been so cautious and understated. They always downplay the challenges here and are behind the curve on their actions and even more behind on the curve when it comes to their words. So for them to be looking at a 50 basis point hikes, double paced runoffs and discussing MBS sales means that there aren't any other options. Adam even believes that he would not be surprised if in the next FOMC meeting, we see these pushed to even more aggressive levels. So to understand how this impacts the market, you need to know one thing, markets hate uncertainty, markets hate uncertainty and surprises. If we know how bad something is going to be, then someone out there is going to take the longtime horizon gamble to buy and price it in. But if we have no idea, that's when things get risky, that's when things get nasty, that's when things get ugly. In only our second quantitative tightening case, we're looking at a pace that we've never seen before along with rate hikes at paces we've never seen before and possibly MBS sales, which we've not done before in quantitative tightening. That is a lot of uncertainty. The market is both concerned and confused. So looking at the chart here in Bitcoin, you can see that after two green weeks, we've had what is going to be now two red weeks. Remember on Monday's video, we spoke about we're currently on this trend right here. So as long as we're able to hold above this line right here, which is basically at that $40,000 level, we're still in an uptrend and we're still good. However, if we do break below that, then we could probably see Bitcoin test the same levels that it tested back here. And at that point, of course, it puts us at risk of testing this next Fibonacci level, which is the levels that we tested back last year in May, June, July. So are we looking to possibly retest these same levels in May, June, July of this year? I hope not, but it looks like it could be a possibility, depending what happens going forward with the Fed and what they do to try to combat inflation. Remember that by combating inflation, what they're doing is making the dollar overall stronger. So usually when Bitcoin has red days, if you look at the dollar, you'll notice that the dollar is going up. And if you can look at this pattern right here, you can see that the dollar just kind of broke out of this consolidation range that it was in, that it was in since back in March. So that could be pointing to a continuation to the upside, which would probably mean not just for Bitcoin, but for the overall markets for them to fall down lower to the downside. 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I will catch you on the next one. As always, peace and love.