President Donald Trump’s administration, together with the Federal Reserve, has been working to sustain the economy that has been distraught by the coronavirus pandemic’s effects.
Unlike other economic superpowers, the US has contended with an extended first wave of coronavirus infections; it has become the worst-affected country by the total number of cases. The Trump administration and the Federal Reserve have to go to extraordinary lengths to keep the people from working and boost the spending.
The measures that include cutting interest rates and injecting cash into the economy could cause people to ‘opt out’ of a weakening US Dollar (USD) – which can fuel the interest in Bitcoin (BTC) and other cryptocurrencies.
The efforts that range from cutting the interest rates down to zero after a shock 1.5% reduction in March, purchasing vast amounts of securities.
Generally, the Federal Reserve has inserted $2.3 trillion into the market starting from March by purchasing Treasuries and mortgage-backed securities, later on bringing the total assets up to $7.06 trillion.
At this rate, given that the US is still dealing with mass unemployment, there is a good chance that the balance sheet might as well continue to boost into Q4, and it could probably end the year close to $10 trillion – making it the highest value ever.
The influence on Bitcoin
Notwithstanding the collapse, by more than 50% between mid-February and mid-March this year, as the stock markets have suffered one of the worst sell-offs recently, the price of Bitcoin has made a dramatic comeback in the second and third quarters – raising to over $12,000, before dropping back down to over $10,000.
On the other hand, the US dollar hasn’t fared so well for over the same period and then slipped against the euro (EUR), pound sterling (GBP), Japanese Yen (JPY), Chinese Yuan (CNY), and the other major currencies since March.
As the US dollar continues to deteriorate, Bitcoin’s strength as a hedge may carry on growing. Simon Yu, the CEO, and co-founder of crypto-powered microtasking platform, StormX, shared his view on this saying:
However, Marshall Hayner, the CEO and co-founder of the crypto payments, processes the platform Metal and then says: “The President has voiced extreme dissatisfaction with the Federal Reserve and may be looking to implement new standards to the dollar to protect it in a post-COVID-19 world.”
Hayner noted that this could include setting up a blockchain center for excellence, or a similar government body—which, in turn, would likely lead to a “renewed interest” in Bitcoin from the executive. He also argued that it could also lead to a “major push to create a US Digital Dollar CBDC to eliminate counterfeiting and increase transparency.”
It could serve to boost Bitcoin; a recent report this year by Grayscale have argued that interest in CBDCs or the central bank digital currencies and could drive interest in Bitcoin by highlighting its value proposition, “Moving fiat currencies to digital infrastructure would highlight that Bitcoin is special not because it is digital,” the report stated, “but because Bitcoin is a scarce, uncompromising, apolitical currency that is open for anyone to use.”
In any case, if the Fed’s new fiscal policy ends up backfiring—and tanking the stock market with it—there is a strong possibility, it will also adversely affect Bitcoin. To what degree, however, remains unclear.
With this case, if the Fed’s new fiscal policy ends up backfiring, there is a strong possibility that will also adversely affect Bitcoin. To what extent still, on the other hand, remains unclear.