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Quantitative easing and digital dollar: the effects on Bitcoin
Quantitative easing and digital dollar: the effects on Bitcoin
Bitcoin

Quantitative easing and digital dollar: the effects on Bitcoin

By Eleonora Spagnolo - 25 Mar 2020

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The Fed’s announcement of an unlimited quantitative easing, followed by a maxi fiscal stimulus plan, contributed to a rebound in stock markets around the world yesterday, which also seemed to be a stimulus for bitcoin (BTC). The cryptocurrency market was positively affected

Yesterday was one of the best days for traditional markets in years. Piazza Affari scored +9%, Paris +8%, better still Frankfurt + 11%, London “stopped” at +9% same as Milan. The overseas stock exchanges are also doing well: Wall Street up +9%, while the Asian markets with Tokyo scoring +7%. 

This was also a positive day for cryptocurrencies, driven by bitcoin, which returned one step away from $7,000 and then settled in the $6,800 zone today. 

Quantitative Easing to buy bitcoin

According to Simon Peters, analyst and cryptocurrency expert at eToro, a multi-asset investment platform, the American quantitative easing measure will encourage the purchase of bitcoin to protect against inflation:

“Bitcoin rose by 11% yesterday, currently at around $6,700, following the US Federal Reserve’s announcement on unlimited QE to help reduce the economic impact of the Covid-19 pandemic. This effectively pumps billions of dollars into the market, so some investors may be wary that the dollar will lose its value, and are moving back into bitcoin to hedge against inflation. Cryptoassets have been used in a similar way in other economies plagued by hyperinflation, such as Venezuela and Argentina”.

For Peters, it is still too early to be overly optimistic.

“Following its previous falls, the price of bitcoin has been tested and held above the $5,800-$6,000 mark on a number of occasions over the last week, so we could get back to $7,000 in the coming days. However, we’ll have to see if the markets have enough momentum to break and importantly stay above this level, or whether there is a further price retreat”.

The digital dollar proposal

Meanwhile, the economic crisis triggered by the Coronavirus has accelerated the digital dollar project in the United States. It is no longer only an idea of the Fed but also a draft lawl advanced directly by the speaker of the House Nancy Pelosi

This too could be a benefit for Bitcoin. According to Anthony Pompliano, the digital dollar will be an inevitable decision to face competition from the Chinese digital Yuan, which is nearing completion

In any case, once currencies will be digital, the competition will not be between a digital dollar and a “paper” dollar but between different monetary policies, and this is where bitcoin will be the preferred option because of its characteristics, including that of being decentralized. 

Sheila Warren, head of blockchain, digital currency, and data policy of the World Economic Forum explains the scenarios that could open up: 

“While it is always exciting to see openness to innovation on the part of the United States government, such an initiative would require careful consideration of digital identity and security and would require cross-sector engagement, including from civil society and technical experts beyond the financial system”.

Therefore, a digital dollar is certainly worth watching carefully, especially on the security front. It is not the solution to all problems, Sheila Warren explains, even if it is a step forward in terms of innovation:

“The use case for a US Central Bank Digital Currency is not entirely clear, and a CBDC in any country is not a silver bullet solution to the problems of financial inclusion, which are deeply complex. On the other hand, increased digitization of the economy could result in faster response to stimulus and enable readiness for future crises. Overall, it’s encouraging to see further evidence that the government is paying very close attention to the technology space and exploring fitness for purpose”.

Eleonora Spagnolo
Eleonora Spagnolo

Journalist passionate about the web and the digital world. She graduated with honours in Multimedia Publishing at the University La Sapienza in Rome and completed a master's degree in Web and Social Media Marketing.

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