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Can Bitcoin be Gainer from Fed’s Balance Sheet expansion?

Believing of an auspicious impact for bitcoin in the long run, the U.S. Federal Reserve, central banking system of the United States of America, is stretching its balance sheet, which incorporates a huge number of assets and liabilities. The banks have more cash available because they pump up more money when interest starts rising. According to a latest data it is known that the amount of Fed till October reached $162 billion. Further in September the balance reached $270 billion referring to the daily growth rate of $5.8 billion. The total asset of Fed is $4.04 trillion.

We know that Fed actually impacts the money supply to keep rates in the target range. The banks pumps more money at increasing interest rate as a result it has more money available to give lend. For example, the central bank has recently begun buying treasuries after the money market went chaotic in September as a result the overall lending system went under threat.

Lacking of Belief in Fed

Fed actually purchases government bonds to boost the money supply and bolster economic growth but these purchases are not basically quantitative easing (QE). But there is a belief of experts that the central bank is in effect concretizing round four of the QE program. The burst in the repo market saying that risk and dept accumulation are much higher that assumed and it has taken a disguised QE program to lightly contain it. The investors are not buying the Fed’s rhetoric and are viewing the ongoing balance sheet expansion as QE. 

Something interesting is waiting for crypto market in the next two or three years because several incidents like QE, lower interest rate and bitcoin halving are going to take place with crypto. Another narrative is that bitcoin is effectively digital gold and a hedge against monetary and fiscal indiscipline. It is also expected that central bank will continue expanding its balance sheet in near future. The bitcoin-Fed monetary policy is set to widen further.

Bitcoin can be Beneficiary from QE’s Cantillon Effect

Actually money injection can affect different sectors of the economy differently. The QE’s Cantillon effect alludes to the change in relative prices resulting from a shift in the money supply. Most invested persons and real estate will be the first beneficiary from the inflationary policies. But for the new investors it will be difficult. QE may also force investors to diversify their investments into bitcoin. Prior bitcoin bull runs were characterized by a gradual decline in equity market volatility. If you take BTC as a risky asset, the QE Of Fed yet seems to be a price bullish development.

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