US Fed’s Stimulus Package helps both Gold and BitcoinMarch 24, 2020
After a rough couple of weeks, the price of BTC has had a chance to alleviate some pressure from that downward spiral that was triggered by the fears of the coronavirus pandemic. Now, the good news came from the US Federal Reserve, the agency which had a lot of eyes on it ever since the new phase of the financial crisis began mid-March. Now, the FED announced a package of measures that will focus on quantitative easing.
The package will have no upper limit and its goal is to support the economy. Presently, its state is very bleak and not just in the US, but all over the world, where the coronavirus and the COVI-19 diseases forced many national economies to a standstill. This is why any good news from the central financial authorities, especially those from the biggest economy in the world, is badly needed all over, but especially in the crypto domain.
However, the same upward swing is once again showcasing the problem of bitcoin and cryptocurrencies being uncorrelated to traditional assets – once again, the FED announcement shows that they are not outside of any correlation. Instead, they are following a similar trajectory like many other assets, including this time around, gold itself.
The FED announced its measures at noon UTC and immediately, the crypto markets reacted in force. BTC price jumped from 5,800 USD to over 6,600 in less than an hour. At the same time, the trader and investor circles also carefully watched how gold behaved. It rose from 1,494 USD to precisely 1,524 USD in the exact same time frame. Of course, all of this came from the fact that the FED and its announcement showed that the government is taking strong action.
These will include purchases of assets, all with the purpose of helping the flow of credit to both businesses and households. The central bank declared that the FED will continue to buy Treasury securities and also take on mortgage-backed securities. Both will be purchased so that the support for the smooth functioning of the markets is there, as well as the effective transmission of broader monetary policy. Because of this, the FED now stands prepared to expand its previous bond purchases to any level that is needed. The previous week, the balance sheet of the central bank reached a record sum of 4.7 trillion USD.
It quickly became clear that the FED is going to strongly support the US economy and do it almost immediately. This was a piece of news the US markets were desperately waiting for in the wake of the mid-March collapse. The sentiment on most of Wall Street turned positive in no time at all, just as both bitcoin and gold saw a strong uptick. Futures also showed a sizable rebound. Lastly, the US dollar index also reacted positively to the news of the FED money injections that will come in the near future.
The news continues to resonate not just with the US economy and citizens, but all over the world. As the biggest player on the financial and economic front, the US has to play a vital role in restarting the commercial cycles in many sectors. In China, where the outbreak initially began, seems to be slowly taking its population out of extreme measures and will likely be back at full production capacity, the US as a consumer and finance hotspot also needs to get back to fray and fast. The FED support should help in making that happen as fast as possible.
Safe Haven Narrative
Unexpectedly the correlation between bitcoin and gold managed to kick start the discussion of whether or not cryptocurrency is a safe haven for assets in unstable times. In many ways, the previous few weeks showed that this correlation is not there. Yet, the picture is different now, being that both assets seem to be tightly correlating and gold is a millennia-old form of safe haven. But, the same process appeared several times in the past as well, including the time before bitcoin came into existence. For example, during the crash of 2008, the price of gold went down by 30 percent in the period between March and October.
Then in November, it detached itself from the rest of the market. In September 2011, gold went to a record high of 1,900 per ounce. Some are hoping to see the same thing happening now with bitcoin. In the world of esports and other digital enterprises, the reaction of ventures is defined by the speed of information and the willingness of their operators to take a chance. With those speeds being at lightning speed now, it all boils down to how fast and how determined are the crypto investors, present and future.
Potential of the FED’s Involvement
Besides the speeds with which anyone dares to move in these uncertain times, there is also the question of the actual potential of the FED’s package of measures. Right now, the markets are reacting in a very positive manner, but as the saying goes, a man dying of thirst in the desert must take the water that is offered. The general state of the world – and not just the economy – is very bleak and troubling not just for the immediate future, but also for the entire decade to come.
With the possibility of the present-day recession slipping into a depression, which will shatter a multitude of businesses like travel, hospitality and many other industries, there are not many things to look for. This is why the FED news is generating such a buzz. Yet, believing that it will be a quick fix for everything right now seems very naive. First of all, there is no way of telling when this crisis will be over and what will be its ultimate cost. Only time will show this as it did in 2008, or better said, in the years after that. For now, the BTC price, like the rest of the domain, is looking for everything it can get, including a stimulus package from a body that is anything if not government-run and centralized.