The anticipation of a move by the world’s major central banks (most importantly, the Fed) to cut official interest rates seems to have helped the Dow surge 5.1% and Bitcoin to surge 3.41% on Monday (March 2).
According to data from CryptoCompare, on Monday, Bitcoin started the day at $8,571, and finished it at $8,864, for a gain of 3.41%.
It all started on Friday, when Jerome H. Powell, the Chairman of the Federal Reserve (the central bank of the U.S., aka “the Fed”) issued a statement last Friday (February 28) aimed at calming nervous/worried investors in U.S. equities at the end of a week that saw the Dow drop 12.36% (its worst week since 10 October 2008).
In this statement, Powell assured investors that the “fundamentals of the U.S. economy remain strong” and that although the COVID-19 outbreak “poses evolving risks to economic activity”, the Fed is “closely monitoring developments and their implications for the economic outlook.”
Goldman Sachs economists Jan Hatzius and Daan Struyven said in a note released on Sunday (March 1) that they expect the Fed to cur interest rates by as much 0.5% no later than March 18, the date of the Fed’s next scheduled policy meeting:
“Specifically, we see a high risk that the easing we expect over the next several weeks occurs in coordinated fashion, perhaps as early as the coming week… Chair Powell’s statement on Friday suggests to us that global central bankers are intensely focused on the downside risks from the virus… We suspect that they view the impact of a coordinated move on confidence as greater than the sum of the impacts of each individual move.”
They also predicted a further 0.5% rate cut in the second quarter.
Several hours ago, Reserve Bank of Australia (Australia’s central bank) became the first major central bank to act. The RBA responded to the threat from the COVID-19 pandemic by announcing that it was dropping its benchmark cash rate by 25 basis points to a new record low of 0.50%, and central bank Governor Philip Lowe hinted that this might be not be the only rate cut this year:
“The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target…The Board is prepared to ease monetary policy further to support the Australian economy.”
A few minutes ago, CNBC reported that finance ministers and central bank governors of the Group of Seven (aka “G7”) nations said in a statement that they promised to take action to mitigate risks to the world economy but did not mention any specific actions.
The statement said:
“Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.”
Today’s statement by the G7 will probably dampen the enthusiasm generated late last week as the result of the comments by Chairman Powell, and so for the rest of this week, both equity markets and crypto markets may not be quite in the same bullish mood that they were on Monday (March 2).
Other events that could help the price of Bitcoin in the short to medium term are the block mining reward halving, which is expected to take place around May, and the 2020 U.S. presidential election on 3 November. In the case of the latter, the markets would probably prefer President Trump to get re-elected, and if a Democrat was to win the election, they would prefer it to be Joe Biden rather than Bernie Sanders since Biden would be more likely to want to maintain the staus quo rather than make radical changes.