Analysts suggest that if the Federal Reserve intervenes to support a troubled US stock market, it could create liquidity and benefit cryptocurrencies. With stocks deeply embedded in American household
The potential for the U.S. Federal Reserve to intervene and backstop the country's $75 trillion equity market has sparked interest among crypto analysts. Analysts from Bitget Wallet and Bloomberg believe that such an intervention could create increased liquidity in the broader financial system, potentially benefiting cryptocurrencies.
According to Alvin Kan, COO of Bitget Wallet, if the Fed steps in with rate cuts or targeted ETF purchases, it would likely lead to a medium-to-long-term uptrend for crypto assets. This follows historical patterns where risk appetite returns and capital shifts towards high-beta investments following such interventions.
The U.S. stock market has grown by 68% over the past five years, adding approximately $6 trillion in value this year alone. However, experts like Peter Schiff warn that rapid growth could set up a major correction, prompting Fed action to support equity markets and prevent a prolonged bear cycle.
Eric Balchunas from Bloomberg ETFs noted that with 58% of Americans owning stocks, there is significant political pressure for the government to avoid a deep market downturn. In 2020, during the pandemic, the Fed bought corporate bond ETFs as a 'buyer of last resort,' which could be a precedent in future bear markets.
While cryptocurrencies would not receive direct backing from the central bank, their macro pricing remains tied to U.S. dollar liquidity and equity market risk sentiment. Increased liquidity expectations due to potential Fed intervention are expected to benefit Bitcoin and other crypto assets significantly.
The broader implications of this scenario include a more resilient macro backdrop for crypto's role as a growth and diversification asset in an environment of expanding global liquidity, according to Alvin Kan from Bitget Wallet.
Jeff Mei, operating chief of BTSE, expressed that while the Fed might not print more money due to high inflation, it could use other tools. This potential intervention highlights the interconnectedness between traditional financial markets and cryptocurrencies.
Source: Cointelegraph. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.