Gold, stocks, and Bitcoin have all reacted positively to yesterday's announcement by the Federal Reserve (the central bank of the U.S.) about the latest quantitative easing (QE) measures it plans to take to combat the economic threat posed by COVID-19.
QE is "a monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to add money directly into the economy."
At 12:00 UTC on Monday (March 23), the Federal Reserve issued a press release to announce what several influencers in the crypto space are referring to as "Quantitiative Easing Infinity":
Federal Reserve announces extensive new measures to support the economy: https://t.co/k5T0cvNFdm— Federal Reserve (@federalreserve) March 23, 2020
This was the most interesting part of the press release:
The Federal Open Market Committee (FOMC) will purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.
At the time of writing, gold is trading at $1,595.20 (up 1.80%), the S&P500 is at 2386.02 (up 6.64%), and Bitcoin is trading at $6,738 (up 7.53% in the past 24-hour period).
“Bitcoin rose by 11% yesterday, currently at around $6,700, following the US Federal Reserve's announcement on unlimited QE to help reduce the economic impact of the Covid-19 pandemic.
“This effectively pumps billions of dollars into the market, so some investors may be wary that the dollar will lose its value, and are moving back into bitcoin to hedge against inflation.
"Cryptoassets have been used in a similar way in other economies plagued by hyperinflation, such as Venezuela and Argentina.
“Because the amount of new bitcoin that comes on to the market decreases over time, it is by design a deflationary asset when compared with a fiat currency like the US dollar. In theory the value per bitcoin should increase over time.
“Following its previous falls, the price of bitcoin has been tested and held above the $5,800-$6,000 mark on a number of occasions over the last week, so we could get back to $7,000 in the coming days.
"However, we'll have to see if the markets have enough momentum to break and importantly stay above this level, or whether there is a further price retreat.”