- At the beginning of this week, the Federal Reserve announced unlimited quantitative easing (QE) to combat the economic effects of COVID-19, a pandemic that has investors fearing the possibility of a recession as the unemployment claims rose to a record level.
- The day the Fed said it would be printing unlimited amounts of cash, the price of bitcoin jumped over 10% just like the S&P 500 did, rallying nearly 8%.
- Yesterday, the stimulus package of $2 trillion was agreed upon but it was unable to move the markets.
The Fed has long been pumping liquidity in the market and after the market carnage started a few weeks back driven by the novel coronavirus and oil price war, the central bank slashed the interest rates to zero, short-term Treasury bills even dropped into negative territory, and they were forced to work on their strategies.
The Fed decided to launch the bazooka of trillions of dollars in monetary and fiscal stimulus but as crypto commentators have reportedly been calling out, it has the underlying risk of inflation.
“This is how free money looks like. But there is no such a thing as a free lunch, is there. Society pays for this. Via inflation. The price to pay is inflation in the long run. Inflation expectations are popping and the long end of the treasuries curve is already pricing it in,” said,” said economist and trader Alex Kruger.
The last time such emergency measures and QE program were launched was during the financial crisis of 2008. Fed Chairman Jerome Powell said earlier this week that the central bank will continue its “aggressively and forthrightly” efforts. On his promise of unlimited bond purchases, he said the Fed won’t “run out of ammunition.”
It’s Bitcoin’s Time
Bitcoin price might be acting like a risky asset and moving along with the stock market but bitcoin believers, investors, and commentators are confident in the world’s leading digital asset and that it’s time for it to shine.
Bitcoin's robust simplicity is a beacon in a hurricane of monetary mayhem ($T airdrops, bank, blue chip & muni bailouts, ZIRP, QE∞, …).
Hard to imagine a better stage for Satoshi's press release about tightening bitcoin's new supply by another full 50%. (Halving = May 13)
— Tuur Demeester (@TuurDemeester) March 22, 2020
When it comes to price, in the time of crisis, everything gets sold off as investors look for cash. Even gold saw its biggest weekly decline since 2013 during this sell-off the same way it did in 2008.
Now, if we look at bitcoins’ history, the crypto asset was created right at the time of the financial crisis and as popular analyst PlanB said, BTC is made for this situation.
"Fed Announces Unlimited QE"
This is why Bitcoin was created.
— Bitcoin (@Bitcoin) March 23, 2020
According to Kruger, QE infinity is bullish for bitcoin because of three reasons. In the short term, bitcoin is trading like a risk-on asset and it will uptrend just like other assets.
In the long-term, he said, Bitcoin is “a hedge against tail-risk of fiat systems collapsing, and odds of such an event increased marginally.”
And lower yields may also help on the margin, said Kruger. As we saw this time, following the QE announcement, the treasury yield curve collapsed and gold spiked just like in 2008. At that time, when QE was announced, it triggered the gold bull market. This time, the deflationary asset with limited supply is also expected to emerge as the winner once the dust settles.