Recent intervention from the Fed in providing liquidity to the US market has outweighed what was injected into the market during the 2008 financial crisis by some margin. In fact, it can be seen as the biggest intervention in the repo markets in history, something in which Bitcoin is immune.
The Fed has, through 2019, been pumping cash into the economy at a staggering rate. In October last year, the Fed increased the number of dollars in circulation by $162 billion in one round of money creation, as BeInCrypto has previously reported. However, the Fed still maintains that this is not quantitative easing and that it is only temporarily creating this money in an attempt to bail out financial institutions.
The major issue, as pointed out by Founder of QuantumEconomics.io, Mati Greenspan, (@MatiGreenspan) is that with liquidity freely flowing into the market from the Fed, it will be difficult to stop the flow without causing major repercussions to the stock market.
The Fed's recent intervention in the repo markets is the biggest in history!!
Now that they are again flowing liquidity freely into the market, it's gonna be hard to shut the tap again without major repercussions in the stock market. pic.twitter.com/JAx9TVRZvT
— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) January 6, 2020
More so, the vast creation of new dollars from the Fed, and their injection into the market, is sure to wreak havoc with the value of the currency. Increased supply can lead to inflation, which is in stark contrast with Bitcoin. After all, the cryptocurrency asset is working in a reverse direction and expected to gain value and lessen supply, especially after the upcoming mining reward halving.
The Problem With Creating Money out of Nothing
It is quite ironic that Bitcoin is criticized by economists for being valueless and created from nothing when the US Dollar is facing major threats to its integrity for similar reasons. The Fed is the only institution that can create new money, but the magnitude of its printing is verging on dangerous.
For example, the famed caller of the 2008 financial crisis, Nouriel Roubini, took on the former founder of BTCC, Bobby Lee about the importance of the dollar while also accidentally pointing out it is comparable to a “S***coin.”
The dollar is ever depreciating at a rapid rate with these policies from the Fed. And, because it is being created from thin air, it bears a stark similarity with a so-called “S***coin.” On the other hand, Bitcoin is showing its anti-inflationary properties as the supply lessens over time, and notable will cut in half in May 2020 with the mining reward halving.
Better Value in Bitcoin?
While Bitcoin’s value has not been enshrined through a governmental agency, like the Fed, it is immune to policies that could be considered damaging to it. Bitcoin is designed to be anti-inflationary and the supply is intended to lessen over time.
In terms of macroeconomics, this makes the value of Bitcoin far more impressive and stable. As the circulating supply falls, the demand should increase, and the value of the coin should be expected to follow.
To quote Lee, who gestured to Roubini in their showdown in London last year:
“I moved to the United States in 1989, thirty years ago, and I remember that $100 was worth so much money, it could do so much for me, over a weekend. If I hold the same bill for thirty years, is it fair, is it good that today, that same bill is worth much less than thirty years ago — is that fair?” he asked.