USA central bank promotes bitcoin
According to analysts, the announcement by the U.S. Federal Reserve to continue printing huge amounts of money in the coming years acts like an advertisement for Bitcoin. This could further fuel the market for the king of cryptocurrencies, they said.
The last few days have brought exciting things. On December 16, the Federal Reserve (simplified: the U.S. central bank, Fed) said in a press release that it would continue to support the U.S. economy in the coming years. Specifically, it plans to buy $80 billion of U.S. government bonds per month. Another 40 billion U.S. dollars are to be spent monthly for the purchase of mortgage-backed securities. This is to be maintained until the employment targets and inflation of 2 percent are reached in a stable manner.
How long will the Fed support the U.S. economy?
As it stands now, it may take two to three years to reach that goal. That would mean the Fed pumping at least $1,440 billion, or more than $1.4 trillion, into the U.S. economy each year. That would be equivalent to about 20 percent of total U.S. tax revenues.
Such an expansion of the money supply could lead to inflation, although some experts dispute this. In any case, there is a risk of a loss of confidence in the purchasing power of the U.S. dollar.
Mark Haefele, the chief investment officer at UBS Global Wealth Management told Reuters:
We foresee further weakness [in the U.S. dollar].
What impact will the announcement have on Bitcoin?
The initial impact of the announcement was already evident yesterday, when Bitcoin (BTC) seemingly effortlessly hit a new all-time high. In the process, the price rose to well over $23,400 per Bitcoin.
Bitcoin offers the advantage that it is limited to 21 million units and is therefore not subject to inflation. In addition, most classic asset types are heavily oversold (in Germany, for example, real estate), so many investors are trying to switch to other assets.
Vishnu Varathan, the chief economist of Mizuho Singapore, one of the largest financial services companies in the world, told Reuters that he expects the bitcoin price to continue to rise. The reason for this, he said, is the Fed’s U.S. monetary policy, among other factors.
What else speaks for Bitcoin?
Meanwhile, more and more institutional investors are recognizing the value of Bitcoin and other cryptocurrencies. Investments from major financial services firms in the U.S., Europe, the U.K. and Japan could drive the Bitcoin price even further. Currently, the Bitcoin market has a capitalization of $422 billion. Should the major financial services providers invest just 1 percent of their funds in Bitcoin, $600 billion could be added.