After reaching its all-time high in December 2017, Bitcoin went on a downward trend. The persistent crypto winter of 2018 made the token to lose almost 80%. However, the token has since recovered some ground currently hovering above $10,200. History shows that the recent Great Recession birthed and popularized two leading financial trends.
The financial trends that came from the recession were cryptocurrencies like bitcoin and the unconventional monetary policies quantitative easing enhanced by negative interest rates. Since that time, most of the world’s central banks have introduced trillions into the economy. They have done this through the cutting of interest rates and introducing open market operations to maintain equity markets and general economic data trending higher.
According to various leading commentators, investors, and analysts, the sustenance of the former will majorly help the latter. The unorthodox monetary policies will act as major catalysts for the leading cryptocurrency.
The CEO of BitMEX, Arthur Hayes, recently stated that after the Federal Reserve initiates quantitative easing, Bitcoin could explode towards $20,000. Even if the Fed does not ease the rates, the money will continue to flood into the economy through the central bankers. That will set the stage for scarce and non-sovereign assets like Bitcoin.
Previous reports revealed that the monetary body that oversees the Euro, European Central Bank, did cut its interest rate for deposits by up to 10 BPS (0.1%) to -0.5%. Concurrently, the central bank announced that it would start another round of quantitative easing (QE).
It also promised to buy some 20 billion Euros (equal to $22 billion) worth of bonds and “other financial assets”. The bank will make these purchases monthly hoping that the economy will remain stimulated. However, it is highly unlikely that the bank will purchase crypto assets like Bitcoin.
Additionally, the People’s Bank of China (PBoC) is expected to activate easing policies. But, PBoC recently maintained its medium-term lending facility loan rate. The chief economist for Greater China and North Asia at Standard Chartered, Ding Shuang, believes that all other indicators support a strong case to cut rates.
He was speaking also referring to the real economic activity data released from China which confirmed a downside risk. He added:
“Looking forward, if a large part of U.S. tariffs increases become effective, the downside risks are even bigger.”
Why will Dovish Central Banks Boost Bitcoin?
It has a lot to do with the inflation and money supply effects on the economy. A former portfolio manager at a leading Wall Street fund who changed guards to dive down the “Bitcoin rabbit-hole,” Travis Kling, said that the mentioned policies are a bid:
“Amongst central bankers to devalue their currencies as soon as possible”
He thinks that with the whole world competing to see who can devalue their fiat currency fastest, assets that have ‘provable scarcity’ should start shining. By that, Kling must have something like Bitcoin in mind.
In a recent event, Kling said that BTC is currently acting a risk asset. However, he said that it is a risky asset that has a particular set of investment features that might become more attractive as the monetary and fiscal policy becomes more ‘irresponsible’.