Just like last weekend when the price of bitcoin reacted immediately to the US Federal Reserve slashing interest rates to zero and restarted the QE program, today bitcoin jumped on the back of unlimited QE news.
Bitcoin was trading under $6,000 only to jump to $6,629 in under an hour. However, we are back around $6,300, up 5.83% in the past 24 hours.
Despite the stimulus, the stock market opened lower with the Dow Jones Industrial Average slipping 1.8% and S&P 500 fell 2.9%. Gold, however, headed higher on Monday to $1,524.96 an ounce after the Fed unveiled an aggressive round of additional stimulus.
It’s now become scarily repetitive. Fed or the U.S. government or another govt. announces a big bazooka stimulus. Stocks go up for a bit and then fall with a vengeance. Same story today. S&P 500 -3% after Fed announced unlimited QE.
This beast has a mind of its own. #marketcrash
— Srinivasan Sivabalan (@SriniSivabalan) March 23, 2020
“US stocks gave back all gains since the start of Trump’s presidency,” noted economist and trader Alex Kruger.
Markets reacting to the Fed announcement that they will buy an unlimited amount of assets in order to stabilize the markets.
Bitcoin = Orange
Stocks = Blue
Silver = White
Gold = Yellow
Crude Oil = Purple
US Dollar = Green
Initial results speak for themselves… pic.twitter.com/L3gnDGzn07
— Mati Greenspan (tweets are not trading advice) (@MatiGreenspan) March 23, 2020
The Fed said on Monday that it will launch several programs to help markets function more efficiently amidst the coronavirus crisis.
Federal Reserve issues FOMC statement: https://t.co/tsVdpqAsly
— Federal Reserve (@federalreserve) March 23, 2020
“The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus,”
the Fed said in a statement.
“While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”
Fed President James Bullard predicted the US unemployment may hit 30% in the second quarter and an unprecedented 50% drop in GDP because of the shutdown to combat the coronavirus (Covid-19).
Among the initiatives is a commitment to continue its asset purchasing program, a new chapter in Fed’s “money printing.” Other initiatives include unspecified lending programs to support eligible small-and-medium sized businesses.
“We are now in QE infinity, again,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Free Money, Not Free Lunch
The Fed has been injecting billions of dollars in the economy and considerings trillions more as the coronavirus cases around the world surge over 353,000 and at least 470 people die in the US.
With the shorter-term MMT announced, “the government can now spend all it wants,” said Kruger. This the economist said is “how free money looks like. But there is no such a thing as a free lunch.”
“Society pays for this. Via inflation. The price to pay is inflation in the long run. Inflation expectations are popping and the long end of the treasuries curve is already pricing it in,” said Kruger.
And this is why the crypto industry is so excited. Already, Bitcoin is looking like it might be decoupling, and according to on-chain analyst Willy Woo, we would get more confirmation of this in the coming weeks.
He explains that in a flight to safety, traders first exit risk-on leveraged positions to pile into USD, which has been soaring all this time. Once the assets have crashed against USD and fear peaks, comes the time to hedge in assets ahead of rise in their value as it happened in 2008 in gold and Woo says would happen to BTC in 2020.
The dollar is basically already worth zero.
But the FED also sees that you’re all having problems to get toilet paper in the stores.
This is their solution;
In some time your dollars can be used as toilet paper.
— Crypto Michaël (@CryptoMichNL) March 23, 2020
It’s the first time that Bitcoin is going through a crisis and there is no knowing how it will perform. Currently, it is acting like a risky asset with charts having a bear flag, however, the fundamentals are strong and bullish while the stock-to-flow model cointegration is being followed nicely.
— PlanB (@100trillionUSD) March 23, 2020
“Investors and consumers have trouble understanding Bitcoin’s value proposition. The former expects a cash flow, the latter expects magical payments UX. Both are disappointed by Bitcoin. Savers quickly fall head over heels in love with Bitcoin,”
said co-founder of the Satoshi Nakamoto Institute, Pierre Rochard.