Although the jury is still out on how exactly the outbreak of COVID-19, a potentially fatal disease caused by a coronavirus that originated in China, will affect the economy, investors are fearing the worst: the American stock market has sunk 10% from its all-time high, commodities are tanking, and gold has started to outperform all other assets.
Of course, the world’s central banks have been forced to respond.
After Goldman Sachs wrote in a note that the Federal Reserve was likely going to cut its already-low policy interest rate by 50 basis points (0.5%), the American central bank did just that; on Tuesday morning, following an emergency meeting seemingly in response to the coronavirus fears, Chairman Jerome Powell announced an emergency cut of 50 basis points, just as the market predicted.
The last two times emergency Federal Reserve interest rate cuts took place was during 2008’s Great Recession, then in the wake of 9/11.
Why Are Bitcoin Bulls Pleased About This?
Bitcoin bulls were quick to respond to this news.
Travis Kling, CIO of crypto hedge fund Ikigai Asset Management, wrote that the “sociopathy required to fix a series of popped bubbles by creating even bigger, and even more unsustainable bubbles will be the most lasting legacy of the Boomer generation.”
This was made in reference to his long-held sentiment that by continuing lowering interest rates to the lowest they’ve effectively ever been and injecting liquidity into the market, central banks are complicit in overinflating a massive bubble in assets to a point of near lunacy.
The sociopathy required to fix a series of popped bubbles by creating even bigger, and even more unsustainable bubbles will be the most lasting legacy of the Boomer generation.
A non-sovereign money will be the logical solution.
— Travis Kling (@Travis_Kling) March 3, 2020
The solution, Kling says, is “non-sovereign money,” evidently referencing Bitcoin — which contrary to fiat has a limited supply cap, a fixed monetary policy that cannot be controlled by a central group, and a decentralized nature not tied to a single state or corporation.
This was echoed by Brian Armstrong, CEO of Coinbase. In a Twitter thread on the matter, the industry executive wrote that the aggressive fiscal and monetary policy by central banks and governments “may lead to growth in crypto this year.”
He cited that such inflationary policies will likely force funds into cryptocurrencies “that are viewed as a hedge against inflation,” presumably talking about Bitcoin, though he failed to mention that asset by name.
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
Even traditional market analysts, like Henny Sender of the Financial Times, has argued that central banks are proving Bitcoin’s value and purpose. She wrote in a column for the Nikkei Asian Review:
In other words, thanks to the efforts of developed market central banks to drive both their currencies and interest rates down, they have turned cryptocurrencies into safe-haven assets.
What’s important about these arguments is that central banks are likely just starting with their “unsustainable” policies; per previous reports from Blockonomi, President Trump called for negative interest rates in 2019, which is something that is likely to force Bitcoin even higher should they be implemented in the U.S.
Peter Schiff Isn’t Convinced
Although most Bitcoin bulls have been over the moon, so to say, about the Fed’s recent decision, gold bug and cryptocurrency skeptic Peter Schiff has said that the rate cut actually proves his case that BTC should be sold.
Referencing the fact that Bitcoin failed to rally on news of a de-facto devaluation of the U.S. dollar against other fiat currencies, Schiff wrote:
If Bitcoin can’t rally with an emergency cut, plus all of the recent stock, bond, currency and gold market volatility, under what circumstances will it rally? If Bitcoin won’t go up, why own it? The answer to that question is “sell.” Look out below!