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Will the Fed’s Easy Money Flow to Bitcoin?

government reform could kill bitcoin, says banking specialist

Key Takeaways

  • The government and Treasury neared confirmation for a $1.6 to $2 trillion fiscal stimulus plan.
  • American stocks recorded their highest daily gain since 1933 on the news.
  • Is Bitcoin's uptick also trading on the same information?

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The Dow Jones Industrial Index (DJIA) ended Tuesday on a bright note with an 11.37% gain. US stocks saw an uptick in sentiment as the government and Treasury neared confirmation for a $1.6 to $2 trillion fiscal stimulus plan. With the Fed also promising $4 trillion in liquidity, is there a bullish case for Bitcoin?

Will Easy Money Flow to Bitcoin?

The global economy faces its most pertinent threat in over a decade in the form of the coronavirus. Politicians are banding together to find a solution to any adverse impact the virus will have on the economy. 

Over the last decade, the Federal Reserve has helped prop up markets by giving financial institutions low-cost liquidity against Treasury bills.

A fiscal stimulus deal worth at least $1.6 trillion, per Senate minority leader Chuck Schumer, is almost confirmed. This is intended to aid the American people through a looming unemployment crisis. American stocks had an astounding response to this news, recording their highest daily gain since 1933. 

Although Bitcoin’s correlation to gold has been subject to widespread attention, this has been superseded by its correlation to the US stocks in the last two weeks. 

Now, with such a high correlation between the two asset classes, an improved outlook for equities could result in enhanced sentiment for cryptoassets. 

Correlation between BTC-GOLD and BTC-SPX. Source: CoinMetrics

Cryptocurrency analysts are hard at work debating the effects of the latest quantitative easing on Bitcoin. Some speculate that financial institutions holding low-cost money may turn to Bitcoin.

As it stands today, however, institutions aren’t betting on Bitcoin to do any better than their favorite stocks. Furthermore, if the global economy enters a recession, investors are not likely to allocate capital to risk-assets in the near term, even with the extra stimulus.

However, the coronavirus, which is the largest headwind for the economy, seems to be steadily getting worse in the United States. This paints a bearish picture for risk-assets for the foreseeable future. 

Once concluded, a large portion of the extra money in the economy will be simultaneously pushed into risk-assets. Bitcoin enthusiasts can only hope that the top crypto remains coupled to the broader economy. Only time will tell which narrative BTC assumes during the length of the crisis. 

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