Bitcoin price surged 16% and crossed $9,200 by now. Market factors include the beginning of the removal of quarantine in the EU and the most powerful emission of the Central Bank of the EU and the Fed.
Bitcoin‘s price jumped Wednesday representing the biggest rise in the last six weeks. And the price is still growing. That was actually a lot better than most of the U.S. stocks as well even though Federal Reserve (Fed) did promise that it will keep pumping new money into markets. Immediately after the promise of so-called ‘helicopter money’ the government data showed the economy is fast-going into recession.
The Fed committee said:
“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world.”
Therefore, policymakers agreed following their two-day meeting in Washington to maintain interest rates in the range of zero to 0.25%, as they continue to see signs of a badly damaged economy.
Bitcoin’s Returns Grew to 20%
But let’s go back to Bitcoin, shall we? Bitcoin jumped by 13.43% to $8,861 as of 4:23 am CET. Just for comparison, The Standard & Poor’s 500 Index finished Wednesday’s trading with a 2.66% rise. At the moment of writing, 10:45 am CET it is already over 16% up, trading at $9,208. A couple of hours ago, BTC managed even to touch $9,400 but then declined a bit.
In terms of year-to-date performance, Bitcoin’s returns grew to 20%, jumping past gold’s 12%. Many cryptocurrency investors see Bitcoin as a hedge against inflation, much similar to gold. This could actually be a result of (at least in theory) central-bank money injections, or, already mentioned – helicopter money. Deutsche Bank predicts that central bank balance sheets have risen by approximately $3.7 trillion just before the March started.
Fed Doesn’t Expect Deflation
Led by Chair Jerome Powell, Fed said it would keep benchmark U.S. interest rates close to zero. Powell also said he doesn’t expect deflation in the U.S. as long as inflation expectations “remain anchored.”
He added that there has been downward pressure on inflation “for several decades” and stressed that, even during the 2008 economic crisis, the U.S. did not see deflation.
Some analysts were saying the central bank might disclose its plans to start tapering the asset purchases, which together with emergency-lending programs have expanded the Fed’s balance sheet past $6.5 trillion for the first time in its 107-year history.
“It’s clear that the effects on the economy are severe. We won’t run out of money. It’s an unlimited pot.”
The Fed’s announcements came after a report from the Commerce Department’s Bureau of Economic Analysis earlier warned that gross domestic product contracted at an annual rate of 4.8% during the first quarter as the government ordered people to stay at home. The report gave what economists characterized as the first official data verifying that the country is slipping into a recession.
BTC Rally Condoned by FOMO
Powell also warned that second-quarter economic data will reveal the “unprecedented” damage from the coronavirus. However, he expressed hope that, even if the “very low oil prices” push the headline inflation into negative territory, “people would see through that” and look to core inflation.
Kevin Kelly, co-founder of Delphi Digital, a cryptocurrency research firm commented that Bitcoin’s rally was likely condoned by “fear of missing out,” or FOMO, on the part of traders. “Buying begets more buying,” he said.
During the first quarter of this year, Bitcoin fell more than 11 percent but the price has finally started to rise since the start of April.
Denis Vinokourov, head of research at BeQuant, a London-based institutional bitcoin brokerage firm says that “bears are yet to put up any fight and, given the contained squeeze past $8,000.”