How the Fed will buy junk bonds will affect Bitcoin


In a final attempt to support the shrinking economy, the US Federal Reserve unveiled plans to buy “unwanted” bonds – much riskier investments. Commentators argue that even if it could argue in favor of Bitcoin, it could threaten its price.

The US Fed has extended its stimulus efforts, adding $ 2.3 trillion in economic support to provide “relief and stability,” said President Jerome Powell.

This includes provisions for small and medium businesses in the form of a $ 600 billion loan fund as well as the purchase of $ 500 billion in short-term tickets from states, counties and cities across the country. .

However, the real boost is the commitment to buy “unwanted” bonds, allegedly because of their issuer’s propensity to default. The Fed’s provision is intended to serve as a liferaft for businesses decommissioned following the economic implosion.

According to Charles Bovaird, vice president of content at Quantum Economics, this “unprecedented” decision could play out directly in the hands of Bitcoin and its propagators.

“The Fed’s decision to buy junk bonds and help support the so-called fallen angels is unprecedented,” said Bovaird. Decipher. “In addition, this could easily be interpreted as a measure to support the non-investment grade bonds of companies trading at fundamentally inflated values. “

Bovaird argues that the Fed’s perceived excessive reach could further undermine confidence in the financial system.

“A major impetus for the creation of Bitcoin has been the development of a new economic system that can operate independently of banks and government,” he said, “Lots of people don’t trust either, and the Great Financial Crisis gave them a particularly good reason to be suspicious. “

On a similar line, Mati Greenspan, founder of Quantum Economics, spoke of the swelling Fed balance sheet, tweeting, “The most worrying part is the decision to start buying unwanted bonds on the market. The death of capitalism is complete. “

Real Vision Group economist and co-founder Raoul Pal also highlighted a correlation between aggressive tax stimuli and the use of Bitcoin.

“The more extreme the monetary action on a global scale, the more convincing the arguments for Bitcoin over time. “Pal explained to Decrypt. ” There is probably much more to come from central banks in the next 12 months. “

However, Pal returned to Bitcoin’s near-relationship to mainstream markets, pointing out that continued correlation could cause problems.

“The key question is whether the market liquidation phase has ended. Otherwise, Bitcoin may well have difficulties in the short term, “he warned.

While the Fed’s latest efforts to revive the economy may boost Bitcoin’s logic, there may be another benefit to aggressive tactics. As new aids are introduced and larger markets rebound in the short term, the excess stimulus could spill over to the crypto markets.

As Marcus Swanepoel of Luno said in a previous interview with Decrypt, “Any kind of stimulation is more money in the system. “


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