Gold And Crypto Show Significant Gains After Fed’s QE

On March 23, gold went up as well as crypto, which may be related to the U.S. Federal Reserve’s desperate quantitative easing action to alleviate the coronavirus’ effects on markets and the economy.

Bitcoin (BTC) gained almost 12% as of writing. Over the past 24 hours it has been trading in a $5,600-$6,600 range after a quiet weekend for the crypto market.

Crypto asset performances to note on the day include Bitcoin Cash (BCH) up 13%, Litecoin (LTC) up 7% and Bitcoin SV (BSV) 6%. The only asset down is Decred, down less than a percent.

The Fed’s announcement of open-ended asset buyouts together with $300 billion in emergency lending programs to stop further economic downfall coincided with an acceleration in crypto and gold prices. The precious metal is up 3% as of writing. However, the central bank’s move was not enough to prevent S&P 500 from continued downward slide. It was down 2% at press time, being at 2016 levels which means loss of nearly four-year gains.

S&P 500 performance over time. Source: Google Finance

Dan Zuller, partner at crypto research firm Vision Hill, commented:

“It is increasingly likely that volatility and uncertainty associated with the coronavirus pandemic continue to increase in the near term across the global financial markets, as we have seen throughout March.”

The U.S. is caught in an unprecedented economic downturn, with no end in sight. The state of New York has been among those who suffered the most, according to Centers for Disease Control data.

Siddhartha Jha, founder of Arbol, a blockchain-based weather insurance platform, said:

“As the Fed implements more programs to backstop the financial system, such as this morning’s announcement of them buying corporate bonds and agency MBS [mortgage-backed securities], we will see the pressure ease on bitcoin and gold from the collateral selling/leverage unwind side.”

Cryptocurrency investors are interested in seeing what happens if possible endless money printing boosts spending.

According to the Twitter statement of economist and trader Alex Kruger:

“The price to pay is inflation in the long run. Inflation expectations are popping and the long end of the treasuries (sic) curve is already pricing it in.”

It is still unclear how government measures will affect inflation rates going forward, but it could make investors consider alternative asset classes like crypto or gold. Still, these assets may not fulfill people’s expectations since a system shock can force people to sell assets to put cash under a mattress.

Jha, a former Wall Street analyst now working in the crypto industry with his startup Arbol, remembers the previous financial crisis clearly, and has a key insight on the days before crypto:

“In 2008, as I was in the midst of the crisis at JPMorgan’s interest rates desk, gold was expected to provide safety but collapsed around the Lehman Brothers bankruptcy.”