Federal Reserve is at it again! They are planning on injecting a total of $1.5 trillion into the financial system via Quantitative Easing (QE). As I explained before in this article, Quantitative Easing when the central bank injects fiat currency in the economy by buying government bonds and other securities. They do this simply by crediting the bank accounts of the entity that sold them the security. Since this increases the amount of money in circulation, it causes inflation and lowers the interest rates.
They do this so they can make sure that there is liquidity in the market. Without liquidity, businesses can't get the loan they need for their day to day operations and therefore go bankrupt. This sounds all good but what has been going on since 2008 with QE1-QE4 is that most of the liquidity was getting pumped into the stock market. Causing the S&P 500 to reach over 3300 just a month ago before the recent crash. With bunch of money in the financial system and low interest rates, where else would it go? Other places where all this money was ending up was Real Estate AND Cryptocurrency!
This is where Bitcoin comes in. Do you remember what the genesis block said?
The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.
The reason that the maximum number of Bitcoin that will ever come into existence is limited to 21 million is because it was made to fight off devaluation of your money. The more money that comes into existence, the less your money is worth. This is what happens with QE. So, what better way to protect your purchasing power than keeping some of your net worth in Bitcoin? You know that the purchasing power won't be diluted by a central authority like the Federal Reserve every time there is a recession.
My guess is that this drop in the Bitcoin price is only temporary. Once the panic settles in the market, I'm hoping that people will realize that holding USD is a losing game when the Federal Reserve is pumping liquidity in the market and the interest is so low. Hoarding bunch of cash is a losing game. People will need to park their cash somewhere and I am thinking that some of that will go back into Bitcoin.
