Bitcoin is following the financial markets today as they all rise after news that the Federal Reserve would be purchasing an unlimited amount of treasuries and securities.
The Federal Reserve is reversing its previous decision of setting aside $700 billion for asset purchases. Instead, it has now removed the cap entirely and will be purchasing an ‘unlimited amount of Treasuries and mortgage-backed securities’ to support the financial market. [MarketWatch] The Fed also announced a new lending program that will provide up to $300 billion to support companies.
Bitcoin Rises on the News
Bitcoin (BTC) spiked on the Fed news, jumping from $5,850 to $6,530 at the time of publishing, as we once again, see Bitcoin closely following traditional financial markets. Futures markets also flipped in the green today after a drastic reversal with gains expected for the rest of the day.
However, this all comes with a price. The Fed has not committed itself to printing money en masse. Although this may look like good news because Bitcoin is gaining, it is actually a last-ditch effort to salvage financial markets during this unprecedented crisis. Moreover, the Fed now effectively has no tools left in its toolbox.
Although Bitcoin seemed to decouple from financial markets in the past few days, it is now following once again.
Recession Still on the Table
Despite the propping up of financial markets, the real economic data in the U.S. economy is still looking exceptionally poor.
According to former White House economic advisor Gary Cohn, the U.S. is now effectively in a recession. Bank of America’s top economist recently recommended that there should be ‘no upper bound’ for the size of the stimulus.
It does not matter how much the Fed tries to prop up financial markets, it cannot exist separate from the state of the actual economy — and that reality is looking grim. With unemployment spiking past 20%, we could be looking at the worst economic fallout since the Great Depression.
So, financial markets may be holding their relief rally, but anybody who thinks this is ‘over’ will find themselves sorely mistaken. If Bitcoin (BTC) continues to follow financial markets, however, then the cryptocurrency market will also be in for a serious winter on par with 2018.