Bitcoin Trades Flat Even As Fed Signals Inflation-Boosting Balance Increase

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View The Fed's decision to expand its balance sheet is seen as a long-term positive development for bitcoin by crypto market experts.

Bitcoin is lacking a clear directional bias on Wednesday, despite the Federal Reserve's plan to restart its inflation-boosting balance sheet expansion program.

The cryptocurrency is failing to draw bids even though Federal Reserve's chairman, Jerome Powell, said on Tuesday that the U.S. central bank will soon start expanding its balance sheet again in an effort to avoid a repeat of the recent turmoil in the money markets.

Short-term rates shot up as high as 10 percent in September, threatening to disrupt the overall lending system and forcing the Fed to inject hundreds of billions of dollars via market repurchase agreements to keep interest rates in the intended range of 1.75-2 percent.

Powell said the Fed may have to keep pumping money into the financial markets by buying securities in the coming days in order to ensure the smooth functioning of the "Overnight" or short-term lending markets.

The markets believe the Fed's latest operation is nothing but round four of quantitative easing - central bank purchases government securities or other securities from the market in order to increase the money supply and encourage lending and investment.

Travis Kling, a former equities Portfolio Manager and now the head of a crypto asset management firm Ikigai tweeted earlier today that bitcoin is insurance against irresponsible monetary policies like QE. The argument has merit as bitcoin's monetary policy is fixed and deflationary in nature - its supply is reduced by half every four years via mining reward halving.

Fed's purchases of government securities will push up bond prices, triggering a drop in yields, possibly leading to increased investor demand for high-yielding assets like bitcoin.

The positive correlation ended in 2013 as the Fed began preparing the markets for a taper.

Interestingly, gold picked up a strong bid in November last year as markets began pricing in the prospects of US recession and aggressive Fed easing.

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