Since the start of 2021, the crypto markets have been on an absolute tear. Bitcoin and Ethereum – two of the largest cryptocurrencies by market value – are rising 97% and 303% year-on-year, respectively.
A major advocate for the recent success of the emerging crypto industry has been a clear paradigm shift; institutional investors no longer regard crypto as an unstable, dangerous asset class. From Coinbase’s direct listing that makes headlines on Wall St. to Temasek – Singapore’s state fund – which buys 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 made many companies embrace the very asset class they once avoided? The answer is ultra-low interest rates and rising inflation.
Why the Federal Reserve’s current monetary policy will benefit Crypto
On 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.
“In the midst of progress with vaccinations and strong political support, indicators of economic activity and employment have been 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 the money supply, the Fed’s long-term target of 2% inflation is likely to be in line. “Overall economic conditions remain accommodative, reflecting in part 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. When the Fed declared that its monetary policy would remain “accommodating”, it is very unlikely that they will raise interest rates to fight inflation in the short term.
Companies like Microstrategy, Square and Tesla have chosen Bitcoin on their balance sheet instead of cash. As the US Federal Reserve clears uncertainty and continues to repeat its loose monetary policy, the future looks bright for the crypto market.
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