Will Quantitative Easing (QE) Drive Investors To Bitcoin?
The Federal Reserve has cut interest rates to zero since early March this year, restarted quantitative easing (QE), lowered the cost of credit, and boosted the lagging economy. Crypto enthusiasts have a simple take on how this move will affect bitcoin and other assets.
The common sentiment among crypto enthusiasts can be summed up like this: Evil central banks will print so much money that fiat currencies are worthless. All will eventually see that fiat currencies are a lie and turn to Bitcoin - the only asset with real value. Mass storage is coming!
How many people would buy Bitcoin because of quantitative easing and low interest rates? Maybe not as simple as crypto enthusiasts think. This chart from Google Trends shows the relative volume of global Google searches for “buy bitcoin,” “buy gold,” and “quantitative easing.”
As you can see, interest in buying gold and BTC started to grow in March as the coronavirus outbreak spread to Europe and the US. On March 15, the Federal Reserve cut the bank lending rate to near zero, and the peak interest rate of quantitative easing fell back. On March 19, the Bank of England announced quantitative easing, and on March 23, the Federal Reserve took further measures, both of which showed smaller peaks.
Interest in buying bitcoin doesn’t line up with search results for QE, but mostly with search results for “buy gold.” At the moment, interest in bitcoin is still far less than that of gold. In fact, the only time bitcoin searches were on par with gold searches was when bitcoin exchanges (BTC) fell below $5,000 following the bitcoin liquidation crisis.
What conclusions can we draw from this data? With the new quantitative easing policy, more and more people are thinking about how to buy Bitcoin. But far more investors are interested in buying gold. Clearly, the desire for safety is stronger than the desire for quick profits at the moment.
The behavior of businesses accepting crypto payments confirms this risk aversion. For example, of the more than 220 clients of global payments provider Cryptoprocessing.com, more than half choose to immediately convert their crypto earnings into fiat rather than store them in BTC. Instead, many companies simply don’t want to keep bitcoin on their books, despite the revenue it could bring.
Will Bitcoin’s price increase this year? Yes, most likely. But will zero interest rates and quantitative easing lead to a mass exodus of investors from traditional markets into crypto? Not really.
Clearly, there will be a massive reallocation of investment capital this year. Money will flow out of stocks, oil and bonds, but only a fraction will flow into Bitcoin, at least for the next three or four months. The current climate of anxiety is not conducive to high-risk investments - we all know how risky Bitcoin is.
If BTC can hold on after the halving, it has a chance to earn the trust of investors. But if it takes a fresh plunge along the way, traditional profit-seeking investors are more likely to buy growth commodities, such as rare metals. In fact, looking back at the previous two halvings, the market after the halving will definitely come, but it may not be so fast.
Bitcoin could still outperform most traditional assets this year. But this will be due to the positive effects of economic halving and other internal factors, rather than factors such as quantitative easing, zero interest rates or the coronavirus.
