The Quantitative Easing - Crypto Irony
COVID-19 has been an unprecedented disruptive force. Considering all the inflation-deflation difficulties, we can say that the world is now in the middle of uncharted territory. Central Banks around the world are refining the monetary policy to help the economy recover. Perhaps unsurprisingly, this could have a positive effect on the cryptocurrency market.
What Is Quantitative Easing?
Quantitative Easing (QE) is, in a way, a form of financial airbag that deploys as a last-ditch effort to save the economy. It is a way for Central Banks to encourage lending and investment. QE basically creates new money, which banks use to buy government bonds, thereby pushing lower interest rates and making it cheaper for people to borrow.
Consider the 2008 housing market crash and its ensuing economic slowdown. The money printed by the Federal Reserve did not enter into circulation. It remained as accounting entries tied to charter accounts of big banks, which is in complete ignorance of the financial flow. In response to the 2008 QE, Satoshi created Bitcoin.
This time the problem is a totally different animal. The QE of today is channeled to households and small businesses. This money is paid for food and rent, or simply to prevent an economic, social, and political catastrophe. Thus, it’s safe to say that 19th-century industrial capitalism is dead.
The goal of QE in 2020 is humanistic; the well-being of average Joes and Janes out there. The Fed put this money into circulation all at once; no questions asked. As a result, the equities market got high on cash, knocking out multiple short-sellers in its wake. Operators linked to the Fed had been buying up everything from bonds to index funds, and soon, cryptocurrencies.
What’s Next for Crypto?
Cryptocurrencies have never had endogenous cash flows backing them. Their primary value is driven by speculation, illicit trade, and tax evasion, as well as stores of value outside the conventional system. Putting it another way, cryptocurrencies are valid financial instruments, just like stocks. Stocks are increasingly relying on supply and demand, which explains why the market is experiencing record highs in the middle of tough economic times, just like cryptos.
The wall of liquidity is finding its way to the crypto-market. It is this Quantitative Easing that will take cryptocurrencies to the moon. It refers to the beginning of a monster rally. The only thing that delays the movement is that getting into crypto seems like a complicated affair. Crypto-platforms are actually perpetuating pump-and-dump schemes, but they are making progress.
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