Federal Reserve Emergency Measures: Proves Bitcoin Case Again
Unfortunately, crises don’t take weekends off.
Despite the contingency measures activated all around the world to stem the flow of the novel coronavirus illness and to prevent a respective economic fallout, the virus has continued to rapidly spread across the globe as global markets continued to get crunched by this crisis.
Case in point: seemingly responding to measures from many of Europe’s nations to close all borders while U.S. states are forcefully closing almost everything, the futures markets for the S&P 500 have crashed another 5%.
Of course, the Federal Reserve — America’s central bank — has again been forced to react to the flagging markets, which are representative of the underlying economy though are importantly not one and the same. And analysts say that the move from the Fed will be decisively bullish for Bitcoin’s long-term narratives.
Federal Reserve Makes History With Emergency Plan
In an unprecedented move Sunday, the Federal Reserve made an emergency policy interest rate cut of 100 basis points — one whole percent in one go — just a week or two after already cutting its rate by 50 basis points. This comes after President Trump has been calling for lower rates — despite the White House not having control over the Fed — for months on end, citing lower rates in Europe and Asia.
With this latest move, the target Fed Funds rate has hit 0% to 0.25%, levels not seen since the recovery after the Great Recession of 2008. This means that if you have access to these institutional markets, borrowers can effectively borrow money for free, which is a move that should theoretically help boost spending and growth in companies.
But, that wasn’t enough for the Fed.
Also on Sunday, the central bank announced that it would be activating QE, a monetary policy that sees central banks purchase securities on the open market as a form of monetary injection into economies. This round of QE will see the Fed buy $700 billion of securities — $500 million in Treasuries and $200 million in mortgage-backed securities.
And to put a cherry on top of the crumbling monetary cake, the central bank lowered the reserve ratios to 0%. This means, as prominent Bitcoin investor Tuur Demeester wrote, “U.S. banks can now lend out or reinvest up to 10)% of their customers’ deposits.”
The Federal Reserve Board "has reduced reserve requirement ratios to zero percent." So in other words US banks can now lend out or reinvest up to 100% of their customer's deposits…
https://t.co/48wnUjWyJN
— Tuur Demeester (@TuurDemeester) March 15, 2020
One Attempt Out of Many
As Blockonomi detailed late last week, the emergency actions the Fed took on the weekend are far from the only attempt central banks have made at trying to rescue the sinking ship that is the global economy.
Last week, the Bank of England made an emergency cut of its policy interest rate by 50 basis points to 0.25%, while the Bank of Canada did the same when it activated its second emergency cut in a month’s time.
Furthermore, the European Central Bank expanded its QE program by 100 billion euros.
“Buy Bitcoin,” Many Say In Response to Fed News
Due to the severity of these measures, many in the crypto industry were quick to respond with optimism — optimism in regards to the future of Bitcoin, of course, not the U.S. dollar.
Anthony Pompliano, a partner at crypto fund Morgan Creek Digital, likened the Fed’s QE program to a “$700 billion marketing campaign for Bitcoin.”
This, of course, was in reference to the sentiment spread amongst crypto investors that every act by central banks to print money that wouldn’t exist in a decentralized system into existence validates Bitcoin.
The Federal Reserve just ran a $700 billion marketing campaign for Bitcoin.
— Pomp
(@APompliano) March 16, 2020
Many followed the same line, explaining that these historic measures only prove why BTC, which abides by an algorithmically-enforced monetary policy, has the potential for rapid growth in this ever-changing world.
As Arthur Hayes, CEO of BitMEX, wrote in a recent edition of his infamous “Crypto Trader Digest” newsletter:
As central bank printing presses switch into beast mode, Bitcoin should enjoy a nice run back through $10,000 towards $20,000 by year end. Each central bank will cut rates to zero and announce open ended quantitative easing.
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OhNoCryptocurrency via https://www.ohnocrypto.com/ @Nick Chong, @Khareem Sudlow