The Federal Reserve in collaboration with President Trump made an unprecedented move in history to inject $6 trillion into the markets due to the COVID-19 pandemic spread on a global scale.
While the economy is in a widespread lockdown and job loss filing has exploded, the stock market looks fine. Deutsche Bank urged that this is “the end of the free market”— calling it a “zombie” market.
“There is no such thing as a free market anymore,” said the head of global research at Deutsche Bank in a report titled: The end of the free market: impact on currencies and beyond.
“In a matter of weeks, policymakers have become a backstop for private-sector credit markets. At the extreme, central banks could become permanent command economy agents administering equity and credit prices, aggressively subduing financial shocks. It would be a bi-polar world of financial repression with high real economy volatility but very low financial volatility. A ‘zombie’ market.”
Compared to the 2008 financial crisis, this time the Fed moved fast cutting interest rates to zero and flooding the market with massive bailout money. Meanwhile, investors are trying to adapt to the new world order.
“What we’re witnessing here is nothing less than the death of capitalism and birth of something new,”
This is what Mati Greenspan, (Senior analyst and founder of Quantum Economics), thinks, adding….
“By offering to buy an ‘unlimited’ amount of assets from the market the Fed is basically saying that they’d rather nationalize the markets than see prices drop. What started out a decade ago as an experiment in monetary policy now has us witnessing the transition to a new economic system.”
Days when the Fed interventions where rare and small are a thing of the past and traders are simply trying to adjust for unexpected stimulus being injected here and there.
“There’s no doubt stock markets and currency markets are being hugely manipulated by central bankers,”
This is what Glen Goodman, author, and senior trader, thinks about the actual situation.
“Every time I place a trade now, I have to be prepared to get out quick if I’m wrongfooted by a surprise Fed announcement.”
In spite of the enormous intervention from the Fed, financial analysts are still trying to figure out how far it will go the stimulus to rescue the economy.
“Our punchline is that the ultimate impact of the current environment on exchange rate volatility is ambivalent and depends on how far central banks are willing to go in pursuit of financial repression,”
Deutsche Bank’s Saravelos wrote, adding…
“The more central bankers control global asset prices, the more this could offset higher real economy volatility on exchange rates resulting from the exhaustion of policy space.”
In light of the recent developments, investors and traders are looking for alternative markets that are not affected at least directly fro the decisions of the Fed.
“Commodities markets and cryptocurrency markets are thankfully one step removed from the Federal Reserve’s decisions,”
Said Goodman adding…
“The Fed still affects them, but it doesn’t control them in such a direct fashion. This could end up working rather well for crypto exchanges, as traditional traders start looking more fondly at one of the last refuges of free trading in the world.”
Surprisingly Bitcoin and other cryptocurrencies that usually are highly volatile were almost flat in the last month despite some violent swings in the middle of March because of the corona crisis panic.
“Crypto is the freest market we have left because it’s independent of central banks and monetary policy,”
Said Steve Ehrlich, chief executive officer of Voyager crypto exchange, indicating the fixed monetary policy that governs bitcoin with a hard limit of 21 million bitcoins as the opposite of the Fed’s massive quantitative easing adding that his exchange has seen a growing interest in stablecoins as investors and traders seek safe havens in this time concerns and fear.
“Governments around the world have tried to create strict regulations and even shut [bitcoin] down, but by nature, it can’t be controlled the way other markets can. Central banks can’t print more bitcoin or make it more scarce.”
Bitcoin halving which is scheduled to happen in May this year will also lower the bitcoin inflation rate to near 1.8% making bitcoin inflation lower that central bank currencies in times of economic stability.
Bitcoin had 2 halvings since it launched back in 2009. The first halving happened in 2012 and the second in 2009. Halvings are scheduled approximately every 4 years every time halving the block reward the miners receive until 21 million are mined, a thing that is estimated to happen in 2014 or 120 years from now.
“This [bitcoin halving] event will drive its inflation rate below the U.S. dollar and could cause less bitcoin to be mined in the short term, creating a situation where the demand is greater than the supply,”
Ehrlich said, adding…
“This, combined with the overprinting of fiat currencies, directly highlights the value of bitcoin and decentralized currencies. We believe that because of this, the halving will again catapult the price of bitcoin over the next year.”
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