Posted 2 years ago | by Ben Armstrong
$400 Billion From the FED – Bitcoin's Chance for a Santa Rally?
The US Central Bank, AKA the FED, is dumping loads of liquidity on the market for the end of 2019. The FED will be using repos, a kind of repurchase agreement, to inject around $400 billion USD into the markets on a limited-time basis. That is a lot of fresh cash, and some are wondering if it could create a big move in the Bitcoin market.
At the time of writing, Bitcoin (BTC) is trading at around $6,600 USD, putting the BTC market cap at around $120 billion USD. The FED's repo operations are around four times that size, but there probably isn't going to be any sort of direct transmission of the new money into the crypto markets.
Of course, no one really knows what drives asset prices. For the moment it would appear that investors are focused on US equities that are trading near record highs, or a bond market that continues to hold at ultra-low levels.
Bitcoin is Still Decoupled – Probably a Good Thing
According to an interview given by crypto trader Alex Kruger to Decrypt:
“BTC does not respond to monetary policy,...(BTC) is an asset driven almost exclusively by endogenous factors, and is thus not impacted by the general market (meaning: there is no systematic risk)...This is a unique and valuable feature.”
The established financial markets have high rates of asset correlation. Some may claim this is a result of 'economic laws', but the reality of the situation is that major trading entities use algos to more or less control the flow of capital to assets.
Even with a market cap of more than $100 billion USD, the Bitcoin markets are still tiny in the global marketplace, and this could be a very good thing as time goes on.
The FED isn't reintroducing repos to the markets because everything is wonderful. The last time repos were used in this way was back in 2008, when the global financial system was on the edge of imploding.
While Bitcoin, and crypto in general, may rise or fall in the medium-term, it is important to recognize that they are a very new kind of asset class. There is no way to know when the global population will realize the economic freedom that cryptos create, but when it happens, the shift in price will be the thing of legends.
For the moment the world is still locked into the fiat currency hustle. It looks like the FED has been successful on once again calming the markets, and creating momentary stability. How long this policy will work is anyone's guess.