Donald Trump once again blackmailed the boss FED, Jerome Powell. He accused him of not taking decisive action in relation to the current economic situation. He even threatened to dismiss him if interest rates are not reduced to zero.
Fed cuts interest rates… again!
We didn't have to wait long for the reaction. On Sunday, at an unplanned meeting, the US Federal Reserve decided to cut interest rates by a record 1%. Let us recall that just two weeks ago it already lowered interest rates by 0,5%. As a result, in a short time, interest rates hit where they were after a series of cuts related to the financial crisis of 2008 - which is currently zero!
It is worth recalling that raising interest rates results in more expensive loans and lower availability. It is a method of cooling a hot economy in times of prosperity. On the other hand, lowering interest rates is responding to the economic slowdown. Relief for borrowers and cheaper and more easily available loans that can fuel the economy in difficult times.
However, please note the chart above. In subsequent cycles, interest rates reach lower peaks and the wells are deeper and deeper. Interest rates have already reached zero after the recent crisis. However, during the last big bull market on the stock market they did not exceed 3%. In this regard, the FED no longer has too much scope for action, because negative rates create such a pathological situation as the one in which the person granting the loan pays interest, and not the person taking the loan.
However, this is not the end of madness. In addition to lowering interest rates, the Fed has announced QE, or quantitative easing.
What is that?
It's a pretty name printing money. This time, the Fed will pump $ 700 billion into the inefficient system, "created" from the air.
By lowering interest rates, Trump and the FED want to help the economy in a difficult situation related to stagnation forced fight coronavirus.
However, this is not the only virus attacking the global economy. Even worse virus seems to be the policy of central banks, whose activities focus on destroying the value of fiat (traditional) money and turning the financial system upside down. Interest rate cuts and reprints are conducive to rising inflation, which has been raging in the world for a year and affecting the savings of billions of people.
A massed print of money also can't last forever and will eventually stop working. While it helped to get out of the 2008 financial crisis, it may not be enough today, because the GDP growth in many countries in the last decade was based on cheap money and mass indebtedness of enterprises, which should have fallen long with higher rates.
Fed cuts rates - what does bitcoin say?
In response to such actions of central banks, the opposition financial system, i.e. bitcoinshould gain. However, this does not happen.
Bitcoins will always be the same. Unlike fiat currencies, e.g. USD printed on power, nobody can print bitcoins (except forks). Inflation is constant and well known and planned. Nobody controls interest rates on bitcoin. The moments and rules of halving, i.e. the distribution of the digging prize, are also pre-established, known and clear.
So why, during the crisis we are dealing with now, does capital not escape from broken and printed dollars to the predictable and modern bitcoin?
Probably because bitcoin has become a mere speculative instrument. One of the many toys to earn on changing course. Hardly anyone takes him seriously. Hardly anyone uses it to pay. 99% of transactions in the bitcoin network are stock speculation.
How did the Bitcoin exchange rate react to information that the Fed is cutting interest rates?
Once again, it turned out that bitcoin reacted similarly to traditional markets. The sharp rise in price after information that the Fed cuts interest rates has been used by ruthless speculators to realize profits and / or assume short position, i.e. start shorten bitcoin. As you can see, the cryptocurrency market is ruled by absolute speculation. Trainees decide the course of the course.
Traditional currencies, or fiat, are based on faith in the value of cash. As you can see, there is no faith in the cryptocurrency market. Few believe in the future of bitcoin as an alternative monetary system, digital gold, safe harbor for times of crisis. The vast majority do not buy bitcoin to pay or store value in it, because they trust its technology and foundations, but buy it to quickly sell more expensive.