Bitcoin’s role as “digital gold” is about to be tested again after the Federal Reserve pumped $128 billion into markets during Tuesday and Wednesday in its first emergency liquidity actions since the financial crisis of 2008.

Arthur Hayes, chief executive of cryptocurrency derivatives exchange BitMEX, said in a Twitter post that he expected the price of bitcoin to surpass its previous record of $20,000 as the Fed had lost control of interest rates and was about to embark on further quantitative easing.

The Fed injected $53 billion into the market on Tuesday via an overnight repurchase agreement – repo – and a further $75 billion on Wednesday. Little is known about why US banks faced a liquidity shortfall on such a scale as to warrant these operations, but it suggested that economic tensions in the U.S. are increasing.

Why is it Good For Bitcoin?

Such tensions eventually boost haven assets – the safe investments that traders hunker down with in times of economic and geopolitical turbulence – and bitcoin has increasingly been seen as such an asset, alongside the likes of gold, high-quality government bonds and currencies such as the Swiss franc and Japanese yen.

There was little evidence that risk was off on Thursday, however. Risk-on assets performed positively, with equity markets trading broadly higher: in the US, the S&P 500 was up 0.5% during morning trade, while in Europe, the EuroStoxx 50 climbeed 0.7%.

Bitcoin was down 3% at around $9,880, while gold was down 0.4%.


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