The US central bank slashed interest rates for the fourth time in less than a year but stock markets reacted badly. Will crypto markets be a hedge against falling economies?
FED Rate Cut Unwelcome
Another Federal Reserve interest rate cut has been on the cards for some time. That necessity was escalated as Coronavirus (Covid-19) infections increased across the US.
Crypto markets have continued consolidating following their upshift earlier this week but stock markets have taken a hit as investors remain on edge. Total market capitalization remains just above $250 billion as bitcoin holds on to support at around $8,800.
The 50 basis point cut has dropped the US interest rate to just below 1.25%, down from about 1.75%. Not all are convinced that this was the right thing to do.
Chief investment strategist for State Street Global Advisors, Michael Arone, said “I think the Fed’s rate cut backfired in many ways. Instead of soothing the market, it’s reignited investors’ worst fears,”
According to economists that spoke to MarketWatch it signals to investors that “policy makers are grasping significant uncertainty and rapidly mounting downside risks.” Goldbug and crypto critic Peter Schiff told the outlet;
“The problem isn’t the pin, the problem is the bubble and once the bubble is pricked, the damage is done and the air is coming out of this bubble,”
AFP reported that Asian equities fluctuated in early trading today following yesterday’s sell-off on Wall Street.
The Crypto Hedge
According to one industry executive this could be good news for crypto markets, especially if investors start looking for a hedge against failing fiat and stumbling stocks.
Coinbase CEO Brian Armstrong tweeted that such measures could lead to crypto growth this year.
A down stock market and interest rate cuts may lead to growth in crypto this year. Governments around the world are likely to look to stimulate the economy in any way they can, including using quantitative easing and expanding the money supply (printing money).
— Brian Armstrong (@brian_armstrong) March 3, 2020
He added that China has already been printing money and funds may be moved into crypto as a hedge against inflation before adding;
“This could be the year where the mindset of institutional investors begins to shift, from crypto as a venture bet, to crypto as a reserve currency.”
Current global monetary policy is clearly failing with central banks churning out new currency to keep markets liquid, individuals and businesses spending and borrowing, and national debts escalating.
All the while the fiat currencies they are producing are becoming worth less as more of them flood the markets and spending power is diminished.
Crypto assets may well be the answer and this year could be the time that institutional investors start paying them more attention.
Will crypto markets benefit from economic stimulus measures? Add your thoughts below.