The Federal Reserve, the US central bank, has begun to take action to influence the financial market. In the last month, the Fed purchased $ 162 billion worth of investment instruments. The process is called quantitative reduction (QE).
Financial market analysts argue that these measures have the role of injecting cash into the economy, to offset interest rates. Crypto-enthusiasts argue that this is a positive signal for Bitcoin in the long run.
Inflation is the main enemy of the economy, and central banks implement different measures to control it. Because they cannot impose interest rates on banks, central banks inject money into the economic system. Thus, banks have more liquidity available and can grant more loans with lower interest rates.
An extended period of quantitative easing measures may force investors to diversify their investments in Bitcoin. This is by its deflationary nature, as analyst Pierre Rochard said in August.
The process of quantitative reduction can influence the crypto ecosystem
The Bitcoin system works on totally opposite principles than the central banks. The algorithm periodically reduces the amount of BTC entering the market. This anti-inflation measure makes this cryptocurrency a haven for investors.
Gabor Gurbacs, digital asset manager at VanEck, believes that both bitcoin and gold can benefit from the devaluation of the dollar and inflation generated by QE.
“The central banks that extend their balance sheets represent a disguised quantitative reduction. In fact, central banks buy government bonds and expand market recovery programs with the intention of maintaining the balance of the economy. Bitcoin and gold can provide an alternative to the potential risk of catastrophic failures in centrally controlled central banking systems. “
Anthony Pompliano, founder and partner at Morgan Creek Digital Assets, explained:
“Bitcoin is moving towards a unique situation – lower interest rates, more QE and a half-miner reward in 2020. These three events that take place almost simultaneously should serve as a major impetus for Bitcoin in the next 2 years.” -3 years.”