What is Tapering, and how does it affect your crypto investments? Come on, get answers and important information at INDODAX Academy!
The financial conditions in many countries are quite worrying, forcing the world’s central banks to adopt certain policies to anticipate the worst impacts, one of which is tapering.
Tapering is a term in the investment world that is important to note, especially for investors.
The term tapering itself is related to the monetary policy issued by the central bank of the United States (US) or The Fed.
So, to find out more about what Tapering is and its impact on the investment world, especially crypto, as a result of the US Fed’s policy, see the following review.
Get to know the term Tapering in Investment
Tapering is the termination/reduction of certain programs by the United States central bank or The Fed.
The Fed’s tapering off is a step taken by US banks when the economy is being threatened and requires a lot of liquidity funds, namely by reducing monetary stimulus.
The Fed does this by reducing the size of its Quantitative Easing (QE) or quantitative easing program.
QE is a monetary policy by the central bank to hoist a country’s economic growth.
This can be done, among others, by purchasing Asset-Backed Securities.
Asset-backed securities are a type of security that is backed by assets, such as home equity loans, student loans, and credit card receivables.
Typically, this tapering policy is implemented after QEd successfully boosts economic growth.
Referring to its history, this term was first used by a Fed official, Ben Bernanke, in 2013.
At that time, Ben Bernanke used the term tapering before Congress and stated that the Fed would reduce its bond-buying program.
This is what is currently widely known as quantitative easing (QE) or quantitative easing of asset purchases.
Because it can trigger turmoil in financial markets (taper tantrums), the issue of Tapering gets the full attention of market players.
The taper tantrum has hit many investment assets, including gold and emerging market currencies like the Rupiah.
The impact of tapering on the world of investment is enormous, for example, in the world of stock investment.
In stock investment, due to tapering, there is an increase in interest rates in general which causes the value and stock dividends to decrease.
Meanwhile, in forex investments, the effect of Tapering can be seen from the time this policy was implemented.
If Tapering is only announced in one country, while not in other countries, then the tapering policy will badly hit the forex market.
The Impact of Tapering on Crypto Investments
You need to know that crypto investment is an activity of buying digital assets or cryptocurrencies to obtain profits in the long term.
Crypto assets are digital assets that use blockchain technology to secure transactions and control the creation of new units.
Crypto investment has a fairly high risk because its value is very volatile.
Crypto values can go up or down dramatically quickly, so investors must consider carefully before deciding to invest.
For crypto investments, tapering or taper tantrums have no significant impact.
Bitcoin (BTC) and other crypto assets will continue strengthening amidst the taper tantrum.
For example, that is stated by the portfolio manager at SkyBridge Capital, Troy Gayeski.
Examples of Tapering Impact Cases on Crypto Prices
Meanwhile, regarding the impact of tapering on crypto prices, we can go backward, to be precise, in 2013.
At that time, the bitcoin price skyrocketed and then sank, and it even happened twice.
In early 2013, bitcoin was trading at $13.4 per coin, then skyrocketed to $220 in early April 2013.
Furthermore, the cryptocurrency that has the largest market capitalization value fell to a price of $ 70 two weeks later.
After that, however, BTC took a nosedive, reaching a price of $1,156 per coin in December 2013.
However, three days later, BTC collapsed again, valued at $760.
The sharp drop marks the end of a long period of BTC’s crashing trend in early 2015, which hit a low of $315.
Tips for Crypto Investors in Facing Tapering
So, what should crypto investors do in facing tapering?
Here are some tips that you need to know and can apply, including:
1. Do investment diversification
The first tip for dealing with Tapering is to diversify your investments.
This is very important to do in investment to minimize losses that could occur in the future.
By making various investments, potential losses on only one type of investment instrument that may occur can be avoided later.
2. Pay attention to market volatility
Next, tips for dealing with tapering for crypto investors are to pay attention to market volatility.
Volatility is a statistical indicator of financial market instruments that is consistently intentional in fluctuating an asset’s price.
Therefore, investors need to pay attention to this, considering the high volatility in the crypto market, especially for novice investors.
3. Understand economic conditions and money circulation
The last tip is that investors must understand economic conditions and money circulation in the face of Tapering.
By understanding economic conditions, investors can make the right investment decisions.
Meanwhile, by understanding the circulation of money, investors will obtain information regarding the volume of money coming in and out of the crypto market to help design a measurable investment/trading strategy.
Benefits and Risks of Crypto Investment in the Middle of Tapering
One advantage of investing in crypto amid Tapering is related to the impact of the Fed’s policy, which is manageable on crypto assets.
The issue of tapering may not have any effect on the crypto market in general.
According to the portfolio manager at SkyBridge Capital, Troy Gayeski, all cryptocurrencies that have experienced a deep correction are good investments for tapering eventually and gradually reducing liquidity.
He also admitted that he would continue investing in Bitcoin and other cryptocurrencies because he thought their value would continue to rise.
Meanwhile, the risk of crypto investment amid tapering is closely related to short-term investment or trading objectives.
Therefore, in this case, investors or traders must take swift action.
For example, if a crypto asset investment portfolio has shown a downward trend, the asset should be sold.
In addition, crypto traders must also determine cut-loss points to anticipate deep losses when the tapering policy occurs.
It is important to understand that crypto assets are digital assets with blockchain technology that aims to secure transactions and control the creation of new units.
This type of investment instrument is quite high-risk.
This happened because of crypto assets’ volatility and very volatile exchange rates.
This is because the value of crypto can dramatically rise and fall in a relatively short period.
Therefore, investors also need to consider this carefully before deciding to invest.
In addition, a tapering off policy from the US central bank or The Fed also needs to be a concern for crypto asset investors.
The reason is that Tapering is a policy from The Fed that can trigger turmoil in financial/financial markets, so investors need to pay close attention to these conditions before investing.
Tapering is the termination/reduction of specific programs by the United States central bank or The Fed.
The term tapering was first introduced by a Fed official, Ben Bernanke, in 2013.
On the other hand, crypto investment is still promising even though the Tapering occurred amid the tightening policy by the Fed.
The reason is that amid the financial market turmoil that occurred due to tapering, crypto assets were barely even affected.
Thus, crypto can be an investment instrument considered when tapering off occurs.
Where to Buy Crypto?
After you understand the definition of tapering, its impact, and tips for dealing with it for crypto investors, now is the time to find the best and most trusted platform for buying crypto, INDODAX.
You can immediately visit the INDODAX market and directly make buying and selling crypto assets quickly and simply through the INDODAX application.
By downloading the latest version of the INDODAX application, which now provides abundant features for iOS and Android users, you will later enjoy the convenience of making transactions right from your palm.
You can also learn about the ins and outs of crypto and crypto assets at INDODAX Academy.
Come on, trade right now!