Why Bitcoin: Federal Reserve to print billions to keep economy afloat

gepubliceerd op by Cryptoslate | gepubliceerd op

While Bitcoin is an asset independent of central banks, of banks, and of Wall Street, the cryptocurrency's strength and underlying value proposition have become increasingly dependent on events in the traditional financial world as this fledgling industry has grown.

One such trend is the Federal Reserve's decision to pump billions of dollars worth of liquidity into the repo market.

According to a recent policy update from the Federal Reserve Bank of New York, the Open Market Trading Desk of the central bank will be injecting billions of dollars worth of capital into the repo market to "To ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures around year-end that could adversely affect policy implementation."

A brief aside: the repo market, also called the overnight loan market, is the place in which the Federal Reserve issues extremely short-term though large loans to financial institutions to keep said institutions operational.

The repo market is often called the "Backbone" or "Spine" of the economy due to institutions' need for liquidity at all times.

By the end of the year, the Federal Reserve is expected to have printed an extra $425 billion to keep reserve liquidity intact.

What's crazy about all this is the last time the Federal Reserve intervened in the repo market to this extent was during the Great Recession of 2008, implying something similar could take place again in the coming years.

In it, the prominent Bitcoin proponent wrote that this case of financial troubles shows that the financial system is rather fragile, much unlike the anti-fragile Bitcoin "Whose network security grows as the system's processing power grows." Long went on to say that due to Bitcoin's anti-fragile properties, the cryptocurrency can act as an insurance policy "Against financial market instability," for it gives consumers "a choice to opt-out of the traditional financial system."

"Mathematically speaking, bitcoin., given its limited supply, has unlimited growth potential against fiat."Why? It has less to do with bitcoin, but because fiat has an unlimited supply.

As CryptoSlate reported earlier this year, an economy in which central banks print money to satisfy economic goals is one where alternative assets gain a copious amount of traction.