The US central bank, the Federal Reserve, has become the world’s largest investor.
This could also have an impact on the price of BTC.
Yesterday Anthony Pompliano shared a Zero Hedge tweet featuring a screenshot of Bloomberg showing how the Fed now owns 22,913 different assets. This would make the American central bank the largest investor in the world.
The Federal Reserve is officially the world’s biggest investor.
Think about that for a second. https://t.co/DbpZWqso8U
— Pomp 🌪 (@APompliano) August 30, 2020
“The Federal Reserve is officially the world’s biggest investor. Think about that for a second”.
In fact, the central bank’s role is certainly not to invest in the financial markets. Despite this, it has become the largest investor in the world, in particular on the stock market, which is certainly not a risk-free market.
The fact is that, since the beginning of the pandemic, the Fed has been creating large amounts of dollars out of nothing and distributing them on the markets, for example by using them to buy shares.
The attempt was to avoid price collapses, due to a serious and unexpected economic situation, but as an unintended consequence has in fact transformed the Fed into a large investor. In other words, the American central bank is now the world’s largest whale on the financial markets.
Fortunately, it is difficult to imagine that the Fed can sell what it has purchased in the short term, not least because it has not actually had to incur any direct costs to make these purchases.
Selling the securities it now has in its portfolio to collect dollars would be tantamount to taking dollars out of the financial markets, and this is a hypothesis that seems likely only in the event of excess liquidity.
However, there is now a high level of liquidity in the financial markets, as the Fed has had to pay for all those securities using dollars created out of nothing.
Will this liquidity also stimulate the growth of the bitcoin price, or the crypto market in general?
In fact, since the collapse of the financial markets in mid-March, total cryptocurrency capitalization has risen from $140 billion to $370 billion, more than doubling it. Moreover, it must be said that, before the collapse, it had reached a peak of 300 billion dollars in February in 2020.
While at the beginning of the year 68% of this capitalization was due to bitcoin, according to the figures reported by CoinMarketCap, by mid-February it had already fallen to 60%. During the rest of the year, it rarely exceeded 65%, while in the last few days it has fallen even below 58%.
Therefore, although the curve of the total capitalization of the cryptocurrencies in the course of 2020 has followed the same trend as the one of the price of bitcoin, it seems that some altcoins have been benefiting more from the enormous liquidity introduced on the financial markets by the Fed.
It is not clear however how this effect can be quantified, despite the fact that the above-mentioned trend appears in some ways similar for example to that of the American exchanges, and in particular to that of the Nasdaq.
Therefore it is possible to imagine that, if it had an effect on the Nasdaq, it could somehow have had a similar impact also on cryptocurrencies, since the result appears similar, though not identical.
The fact remains that the Federal Reserve is in fact manipulating the financial markets far beyond its mandate, thanks to immense and virtually unlimited firepower. For the time being, this new monetary policy does not appear to have done any damage, but it is still far too early to judge it.