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Bitcoin’s price is likely to be affected as the United States supplies the economy with trillions.

May 17, 2020

Policy makers around the world have tied up unprecedented amounts of fresh money to prevent an impending recession.or worse: total depression. In the United States, the Senate approved a $ 2 trillion stimulus package in late March, and the House of Representatives has now approved a congressional Democrat proposal for another $ 3 trillion to alleviate the needs of Americans. You have an unemployment rate of almost 15%. In response to COVID-19, the Federal Reserve has launched an unprecedented wave of quantitative easing in its history.

As a financial institution responsible for managing the world’s reserve currency, the Federal Reserve uses quantitative easing to provide the economy with new liquidity. With full control over printing money, the Federal Reserve can print so many dollar However you want, which is then injected into the financial system by buying assets on the free market.

Market observers recall the aftermath of the great recession of 2008, when the Federal Reserve contributed over $ 1.2 trillion in assets in just four months to bring fresh capital to the markets. However, The extent of quantitative easing in the wake of the COVID 19 crisis overshadows everything that has happened beforeBecause the Federal Reserve does not limit the amount of money it wants to feed into the system.

Bitcoin’s price is likely to be affected as the United States supplies the economy with trillions.
Bitcoin’s price is likely to be affected as the United States supplies the economy with trillions.

The Federal Reserve has bought approximately $ 2.8 trillion in assets in the past two and a half months. Contrary to the episodes of 2008when the Board of Directors restricted its asset purchases to securing US government bonds, This time, he also promised to buy higher-risk assets like corporate and municipal bonds.

What should crypto investors expect?

The US rescue allowance is designed to help public companies and prevent shareholders from losing their value.r. This new money is expected to increase the cost of assets. However, since most Americans have no assets, the only result they will experience is a weakening of purchasing power. Beni Hakak, CEO of LiquidApps, sees Bitcoin (BTC) as an opportunity to establish itself as a store of value::

“”The COVID financial crisis is the first crisis that Bitcoin is experiencing as an asset classand although some expected performance similar to gold, the situation caused the Bitcoin price to drop sharply. When the global economy started to open, Bitcoin recovered fairly well, surpassing the SP from its respective lows. With the halving of Bitcoin, an event that has been followed by a rally in the past, it will be interesting to see whether Bitcoin can be accepted as a hedge against inflation and as a store of value. “

Quantitative relaxation vs. quantitative hardening

The seemingly unlimited Printing money is in contrast to halving BitcoinAn event that occurs every four years and halves the Bitcoin problem. For crypto believers, this is further evidence of Bitcoin’s status as the “hardest money in the world”. The proven lack of Bitcoin is drawing the attention of ordinary investors and users, concerned about money pressure and the potential to cause rampant inflation.

Related topics: The U.S. Federal Reserve’s quantitative expansion strategy has long-term benefits for cryptocurrencies

Although the system can be “cooked” transparently and without regulation, Avi Rosten, product manager at CryptoCompare – a crypto research and data platform – says that it detects this through surveillance The market fluctuates strongly. The high volume in mid-March signaled mistrust large fluctuations in the US stock market between March 12 and 13, when CryptoCompare counted 11,000 transactions per second. Rusting says that at that time Everyone left risky assets behind to look for US dollars, with no exception to Bitcoin. He added that this is the optimal time for Bitcoin to demonstrate its value as an asset, as all eyes are on it:

“We are likely to see an increase in interest due to the excitement of halving Bitcoin and the record volume on spot exchanges. Our April Exchange Review found that April 30 showed the second largest exchange volume in cryptocurrency history. “

The United States may be at the epicenter of the financial storm, but that doesn’t mean other economies won’t feel the ramifications. Quantitative relief measures like the recently proposed $ 3 trillion Have caused coins like the Brazilian real, the Mexican peso and the South African rand lost more than 20% against the dollar since the onset of the coronavirus crisis.

The uncertainty that followed The sharp decline in mid-March led Bitcoin to replace historically gold. As markets slowly rise, many countries are experiencing a second wave of corona virus that is pumping up the cracks in the recovery process.

A relapse into the 70s?

It is 1973 and an oil crisis sends shock waves to global markets. Governments, particularly the United States, are on the way to printing money to boost the job market. The focus is on scarce commodities such as gold, as investors want to hedge against the risk of rising inflation.

This description of the uncertainty fits well with the current climate, but also with the economic situation in the 1970s. The decade that began with the complete abandonment of the gold standard by the United States ended with a crippling annual inflation rate of 13.3% in the country, even if wages and economic growth were more sideways (with no defined trend). A combination of stagnant growth and rising inflation or “stagflation” put gold in the spotlight as an inflation-resistant store of value.

So far, Fiat currencies have expanded their offerings by halving Bitcoin. With fear of inflation reappearing in the markets, assets with proven scarcity are considered to be well positioned. Mati Greenspan, analyst and founder of Quantum Economics, believes that After extensive quantitative expansions of expansion, Bitcoin will retain its future value due to the limited supply::

“” [Bitcoin] acts as a hedge against inflation like gold and silver. So if the likely scenario of this money creation occurs and induces inflation, gold, silver and bitcoin are likely to hold their value against that currency and act as a valid hedge. “

Related topics: Bitcoin is gaining gold and strengthening its positioning as tomorrow’s asset

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