Chairman Jerome Powell signaled Friday the central bank was prepared to cut interest rates to cushion the economy against the effects of a widening global slowdown and potential health emergency due to the spreading COVID-19.
Federal Reserve Chairman Jerome Powell | Image via Forbes
But whether those investors turn to Bitcoin as a crisis hedge remains to be seen.
Such action by the Fed could, in theory, help bitcoin prices since lower rates would likely reduce the appeal of income-yielding assets such as U.S. Treasury bonds, according to analysts tracking the 11-year-old cryptocurrency. So far, the Fed has not said whether it would cut rates, with Chair Jerome Powell taking a “wait and watch” attitude.
“The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy,” Powell’s statement concluded.
Yields on 10-year U.S. Treasury notes slid by 0.15 percentage point to a new record low of 1.14 percent, indicating heightened demand; bond prices move in the opposite direction of yields. Rates also fell on government bonds from the U.K. Those from Germany and Japan fell further into negative territory.
“As interest rates decline, you’re more likely to tip the seesaw toward assets that don’t have yield, such as collectible assets like artwork or gold or bitcoin,” said Greg Cipolaro, co-founder of Digital Asset Research, a New York-based cryptocurrency analysis firm.
Analysts and traders in the nascent market have debated whether bitcoin should trade as a hedge against malaise in traditional markets, or if it’s more vulnerable to a sell-off alongside riskier assets like stocks and emerging-market currencies when the global economic and market outlooks darken. Some investors say bitcoin is mostly uncorrelated with other asset categories, sometimes trading in sync with stocks and other times in opposition.
For now, the bitcoin market might be too immature for large investors with diversified asset portfolios to use as a hedge against a financial crisis. Indeed, bitcoin’s price drop in recent days — gold has slid, too — might signal most investors are still scrambling into cash when there’s a big market sell-off.
“We see a lot of these global actions having some impact on bitcoin, but there’s also things that are happening in the bitcoin network, and that could have a larger impact than the Fed cutting interest rates,” says Joe DiPasquale, CEO of the cryptocurrency-focused hedge fund BitBull Capital in San Francisco. “I’m still bullish for bitcoin for the year, and a major reason is the halving.”
Bitcoin prices are down 13 percent since Sunday, on track for their worst weekly performance since mid-November. The cryptocurrency slid 1 percent on Friday to $8,700, the lowest in a month.
WHO raises global coronavirus risk from ‘high’ to ‘very high’
The World Health Organization (WHO) said Friday that it had raised its risk assessment of the coronavirus crisis from “high” to “very high,” its topmost designation in a four-stage alert system. The move comes as the governments of the world continue to react to the outbreak and scientific teams seek to understand the virus itself.
“This is a reality check for every government on the planet,” Dr. Michael Ryan, deputy director of the WHO health emergency program, was quoted as saying by The New York Times. “Wake up. Get ready. This virus may be on its way.”
The Standard & Poor’s 500 Index is down 12.5 percent over the past seven days, putting the gauge on track for its worst weekly performance since the 2008 crisis.
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