Both the crypto market and the stock market have recovered strongly since the March lows, but capital markets remain tight. So tight that to save individuals and corporations across weight classes, so to say, the Federal Reserve has stepped in with trillions of dollars worth of stimulus.
It’s a trend that analysts say is beneficial for the cryptocurrency market. especially Bitcoin.
Related Reading: After Rallying 150% From $3,700 Lows, Bitcoin Is Far From Reaching a Top
Federal Reserve Balance Sheet Continues to Surge Higher
According to Compound Capital Advisors’ Charlie Biello, the U.S. central bank, the Federal Reserve, announced Thursday that its balance sheet recently hit $6.934 trillion — up by $2.6 trillion in the past two months. This is by far a record, with the last balance sheet high being $4.516 trillion in January 2015.
Federal Reserve balance sheet chart from Compound Capital Advisors’ Charlie Biello.
What’s crazy is that the Federal Reserve might not be done injecting money into the economy just yet, which could aid the crypto market even further than it already has.
The Federal Reserve’s chairman Jerome Powell asserted this week that the U.S. is currently going through its greatest modern recession ever, explaining that America could experience an economic hit “without modern precedent.”
According to The New York Times, the economist added that even with the existing stimulus, “there is a sense, a growing sense I think, that the recovery will come more slowly than we would like.”
With the Federal Reserve still operating ongoing facilities and may be planning more, especially if the slow economic conditions persist, its balance sheet and the money supply may continue to balloon, accentuating the value of Bitcoin and decentralized crypto assets.
Crypto Stands to Benefit
Yes, central banks are unlikely to ever outright buy Bitcoin as they do with bonds and other asset classes, but crypto could greatly benefit from all the stimulus.
Indeed, Teddy Vallee — founder and CEO of Pervalle Global, a global macro hedge fund — recently published the chart seen below.
Although the investor was hesitant to call the chart perfect, he explained that there’s a potential correlation between the total amount of assets the world’s central banks (Federal Reserve, Bank of Japan, etc.) and the value of Bitcoin on a logarithmic scale.
Highest conviction view over the next 1-3 yrs is that CB balance sheets are going in one direction – up. Given this premise, it seems the best form of expression is via $BTCUSD. While the chart below will need to prove itself, it holds weight both empirically and intuitively. pic.twitter.com/GIjOa15hJ4
— Teddy Vallee (@TeddyVallee) April 23, 2020
Analysts have argued the fundamental side of this idea as well.
Paul Tudor Jones, a legendary macro investor that just last week announced he is supporting Bitcoin, argued in a note titled the “Great Monetary Inflation” that he is revisiting Bitcoin because he wants to protect his capital from inflation due to stimulus.
As to where exactly Bitcoin and crypto will trend towards because of the stimulus, analysts aren’t too sure.
Antoni Trenchev, chief executive of crypto startup Nexo, however, has recently issued a price prediction based on the stimulus and the halving in tandem. Per previous reports from NewsBTC, that level is $50,000.
Photo by Pepi Stojanovski on Unsplash