Will the US Federal Reserve support Bitcoin?

Will the US Federal Reserve support Bitcoin?

Fed Chairman Jerome Powell will speak at a virtual symposium in Jackson Hole tonight. The market is waiting for the announcement of the beginning of the curtailment of monetary incentives, but the spread of the coronavirus forces Powell to delay the inevitable as long as possible.

Over the past year and a half, the Fed has printed about $4 trillion of new dollars and doubled its asset balance to $8.3 trillion.

For the first time in history, the regulator began to buy ETFs, which led to a warming up of stock markets. However, the active work of the printing press caused an increase in the money supply, led to a fall in the US dollar and an increase in inflation.

In the fall of 2020, institutional investors turned their attention to Bitcoin as an insurance against inflation, since its issue is finite and beyond the control of a narrow circle of interested parties. For example, MicroStrategy (NASDAQ:MSTR) alone now owns more than $5 billion worth of cryptocurrency.

Inflation is growing at a record pace over the past 10 years, and now its value is 5.4% in the United States. The population, fearing even greater growth (inflation expectation), buys real estate and cars – thereby heating up inflation even more. Therefore, it is important for the regulator to intervene in time and slow down this process.

US House Price Index, % (YoY)US House Price Index, % (YoY)

The financial community expects that today Powell will indicate the date of the beginning of the curtailment of the bond purchase program. This will slow down the flow of liquidity, the dollar will get a reason to strengthen, and Bitcoin will get a correction. The problem is that the spread of coronavirus is on the rise again due to the Delta strain, and premature reduction of incentives, coupled with the epidemic, will cause serious damage to the pace of economic recovery.

David Beckworth, a former economist at the US Treasury Department, believes that the new strain reduces the likelihood of Powell’s “hawkish” statement. And Stanford professor Erik Brynjolfsson focuses on the negative real yield on 10-year bonds: inflation does not mean that the economy is overheating, because people are willing to lend to the government at a rate of -1%.

Thus, Powell may go against the expectations of the majority and again maintain uncertainty about the reduction of monetary stimulus. This will cause a decrease in the exchange rate value of the dollar and push Bitcoin to exit above $50,000.

Cryptocurrency news