Bitcoin rose by more than 200 percent from its mid-March nadir at one point this year, supported by the Federal Reserve’s unprecedented expansionary policies.
But minutes from the US central bank’s meeting last month showed their officials disagreeing on implementing their new policy frameworks. Some officials noted that they would need to clarify their final words around the purchases of Treasurys and mortgage-backed securities.
Overestimating Growth
Divisions also appeared over how to make their lower interest rate promises more straightforward, casting doubts on how the Fed officials would reach consensus on their asset-purchase plans.
The policies were instrumental in driving the Bitcoin prices upward after they crashed by up to 60 percent in March 2020. Near-zero rates and unlimited bond-buying reduced yields to record low levels. That prompted investors to seek profits in riskier markets, benefitting Bitcoin, gold, and US equities.
Bitcoin corrected by more than 14 percent from its YTD near $12,500. Source: TradingView.com
But the minutes revealed that the Fed officials overestimated their role in continuing its expansionary policy. That was visible in their economic projections. It showed that the officials were expecting a V-shape rebound, as well as a sharper decline in the unemployment rate. But none of it happened.
Stimulus and Bitcoin
The reason behind the Fed’s confidence was their anticipation of an on-demand liquidity tap provided by the US government.
The central bank expected additional spending from Congress and the White House atop their $2 trillion coronavirus stimulus package. But that appears less likely to materialize given the recent turn of events.
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