The Fed, the central bank of the United States, did what many expected. But at a surprisingly fast pace. On Sunday evening, Polish time, it announced that it was... cutting interest rates again. So these are now at 0-0.25 percent, which is 1 percent lower than before. What does this mean for cryptocurrencies? Interest rates down again Why is this so strange? Well, the Fed has already cut interest rates in the US and that was just two weeks ago. These have now fallen to the level held between 2008 and 2015. This is the best evidence that a crisis has begun. - The coronavirus outbreak has hit communities and disrupted economic activity in many countries, including the US. The health of global finance has also been affected, the Fed's announcement reads. Little else. The Federal Reserve also decided to pump huge amounts of dollars into the market. We're already talking about the repurchase of assets worth $700 billion - $500 billion worth of bonds and $200 billion worth of mortgage-backed assets. - We want to get the bond market back to normal as soon as possible. We want to send a signal to the markets that we are not going to be tethered by a limit under the bond-buying program. We're going to come into the market strongly tomorrow and we're going to buy all securities, across the entire range of the yield curve. We're going to use our tools to bring these important markets back to normal," explained Jerome Powell, head of the Fed, yesterday. What does this mean for bitcoin? Bitcoin was supposed to be something that would protect us during the crisis. Do we already know that it has failed in this area? Both yes and no. First, it failed when it came to the first wave of panic in the stock markets. Even gold and silver are already falling. Less intense, of course, but still. In short, in the first wave of the crisis all assets lose. When the situation will normalize and the investors will cool down, they will start to make rational decisions again and maybe they will return to heavily overvalued markets. But how will the Fed's decision affect BTC? Let us note that lower interest rates may (but do not have to in the current situation!) lead to a jump in inflation. A similar policy to the Fed's is already being implemented by other central banks (NBP, among others, is thinking about it). This may lead to a global epidemic of... inflation. When fiat currencies start to lose their value, investors will start looking for assets that will help them maintain the value of their capital. This will certainly include precious metals. Will they also include cryptocurrencies? Let's note that BTC has a pre-planned supply. Additionally, it is independent from the authorities. It may turn out to be a bull's eye. However, the key word here is "MAY". Let's remember that cryptocurrencies did not yet exist during the recent economic crisis, which, by the way, concerned the financial sector, not strictly the economy. We don't know how BTC will behave in such an extreme moment. So you have to make your own decision about what to do now in terms of an exchange.... Tags bitcoin FED repo interest rates
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