Fed, the central bank of the United States, did what many expected. Only at a surprisingly fast pace. On Sunday Fed announced that it is cutting interest rates again. Interest rates are now at 0-0.25%, which is 1% lower than before. What does this mean for bitcoin and cryptocurrencies?
Interest rates are down again
Why is that so weird? Well, the Fed has already cut interest rates in the US just two weeks ago. These have now fallen to levels maintained in 2008-2015. This is the best evidence that the financial crisis has begun.
“The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected.” – Tou can read the full article in the Fed release.
The Federal Reserve has also decided to pump huge amounts of dollars into the market. We are already talking about buying assets worth USD 700 billion – bonds worth USD 500 billion and assets secured by repayment of mortgages for USD 200 billion.
“We want to restore the bond market to function normaly as soon as possible. We want to send a signal to the markets that we will not be bound by the limit under the securities purchase program. We are entering the market tomorrow and we will buy all the securities in the whole range of the yield curve. We will use our tools to bring these important markets back to normal operation,” explained Jerome Powell, the head of the Fed, yesterday.
What does this mean for Bitcoin?
Bitcoin was supposed to be something that would save us during the crisis. Do we know that he has failed in this field? Yes and no.
First of all, he failed in the first wave of panic on the stock exchanges. It’s just that even gold and silver are already falling. Of course, those are falling less, but still. In short, all assets decline in the first wave of the crisis. When the situation normalizes and investors cool down, they will start making rational decisions again and may return to heavily discounted markets.
However, how will the Fed’s decision affect BTC? We note that lower interest rates can (but do not have to in the current situation!) Lead to a jump in inflation. Other central banks are already implementing a similar policy like Fed. In Europe, we also see negative rates on deposits in banks of the second level. This can lead to a global epidemic of inflation.
When fiat currencies start losing value, investors will start looking for assets that will help them maintain the value of their capital. Certainly, there will be precious metals. Also cryptocurrencies?
Note that BTC has a fixed supply in advance. For this, it is independent of the authorities. It can be a hit. However, the keyword here is “CAN”. Let us remember that cryptocurrencies did not yet exist during the last economic crisis in 2008-2009, which, moreover, affected the financial sector and not strictly the economy. We don’t know how BTC will behave in such an extreme moment.