Fed announces unlimited QE, bitcoin surges 10%

On the evening of March 23, Beijing time, before the stock market opened, the Fed announced a new round of large-scale rescue measures, including an unlimited purchase of bonds to keep borrowing costs low, and formulated plans to ensure credit flows to businesses and state and local governments.

The Fed said it would buy $ 75 billion in Treasuries and $ 50 billion in institutional home mortgage-backed securities (MBS) every day this week, and reset daily and regular repurchase rates to 0%.

Stimulated by this news, the three major US stock index futures rose instantly, and Bitcoin rose by more than 10% in just two hours, from $ 5,800 to $ 6,600.

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In this regard, Hongye, Managing Director of Bank of Communications International, commented on the social platform, saying that the Fed put all its bets tonight, and the global market was in jubilation.

However, US stocks did not buy after the opening. The S & P 500, the Nasdaq Composite and the Dow Jones Index all fell sharply.

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Facing the spread of the epidemic and the collapse of financial markets, the Fed has launched a series of rescue measures in the past week, not only reducing the benchmark interest rate to zero, but also announcing quantitative easing (QE) as high as US $ 700 billion, even in two days The three major policy tools that were used during the 2008 financial crisis are the Commercial Paper Financing Facility (CPFF), the Primary Dealer Credit Arrangement (PDCF), and the Money Market Mutual Fund Liquidity Tool (MMLF).

At present, the above measures have not effectively prevented the stock market from plummeting. The three major US stock indexes have wiped out all gains since Trump took office.

At the same time, when Bitcoin faced a crisis, it failed to reflect the value of safe-haven assets. The new crown pneumonia epidemic has caused the stock markets of many countries to plummet, and worries about the global financial crisis are increasing day by day. Bitcoin has fallen by more than 50% in two days, and it has fallen by more than 60% in one week. The poor ability to resist risks is vividly reflected.

Bitcoin and S & P 500

(From December 2019 to March 2020, the trend comparison of Bitcoin and S & P 500 Index)

Earlier, many Bitcoin believers like to describe Nietzsche's "unkillable, will only make me stronger" to describe Bitcoin's stubborn vitality, but there is another sentence: if you do not die, you will not die. Another important reason for this plunge in Bitcoin is that almost all participants arbitrarily increased leverage to halve the bull market. When the price of Bitcoin dropped to a certain threshold, the leverage was exploded, and liquidity dried up instantly, resulting in a series of liquidation. .

Since the birth of Bitcoin, the price has gone from 0 to the current $ 6,000, and the market value has reached $ 100 billion. The premise for Bitcoin to achieve such remarkable results is that the world has just emerged from the 2008 financial crisis, and the over-issue of currencies in many countries and the government's release of water caused the devaluation of fiat currencies. Bitcoin has enjoyed a good life for 10 years.

When this major premise is taken away, all the rising myths of Bitcoin are instantly dispelled, and the good days of Bitcoin are over.

From this point of view, when the global economy (note that the global, not local countries or regions) is facing the risk of recession, Bitcoin will magnify the risk. As the epidemic is brought under control and the global economy begins to flourish again, the hedging nature of Bitcoin relative to fiat currencies may begin to play a role.