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Thursday, Jul 29, 2021

Why the Federal Reserve’s Current Monetary Policy Will Benefit Crypto

Why the Federal Reserve’s Current Monetary Policy Will Benefit Crypto

Since the start of 2021, the crypto markets have been on an absolute tear. Bitcoin and Ethereum — two of the largest cryptocurrencies by market capitalization — are up 97% and 303% year-to-date, respectively.

Since the start of 2021, the crypto markets have been on an absolute tear. Bitcoin and Ethereum — two of the largest cryptocurrencies by market capitalization — are up 97% and 303% year-to-date, respectively.

A big proponent of the fledgling crypto industry’s recent success has been a clear paradigm shift; institutional investors no longer view crypto as an unstable, dangerous asset class. From Coinbase’s direct listing making headlines on Wall St. to Temasek — Singapore’s sovereign wealth fund — purchasing Bitcoin, the growing acceptance of these digital assets is obvious.

Of course, there are many factors that led to this rapid institutional adoption, but what led many corporations to embrace the very asset class they once shunned? The answer is ultra-low interest rates and rising inflation levels.

This Wednesday, the Federal Reserve announced that it would keep interest rates at current levels, while continuing asset purchases of $120 billion on a monthly basis.

“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement.”

With the economic recovery from the pandemic and the rapid expansion in money supply, the Fed’s long-term target of 2% inflation is likely in line. “Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses,” the central bank said.

This is positive news for the crypto markets, as institutions will continue to turn to the digital asset as a hedge against rising inflation and the weakening dollar. As the Fed stated that its monetary policy will remain “accommodative”, it’s very unlikely that they will raise interest rates to combat inflation in the near term.

Corporations such as Microstrategy, Square and Tesla have opted for Bitcoin on their balance sheets in lieu of cash. As the U.S. central bank clears uncertainty and continues to reiterate its loose monetary policy, the future seems bright for the crypto market.

Source: Fintechs.fi – Fintech News

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