In a last-ditch attempt to sustain the waning economy, the US Federal Reserve has unveiled plans to buy “junk” bonds—much riskier investments. Commentators argue that while this might make the case for Bitcoin, it could threaten its price.
The US Fed has extended stimulus efforts, adding $2.3 trillion in economic support in an effort to offer “relief and stability,” according to Chairman Jerome Powell.
This includes provisions for small and medium-sized businesses in the form of a $600 billion lending fund as well as purchasing $500 billion of short-term notes from states, counties, and cities around the country.
However, the real kicker is the commitment to buy “junk” bonds—so-called due to their issuer’s propensity to default. The Fed’s provision is intended to act as a life raft for companies downgraded in the wake of the economic implosion.
According to Charles Bovaird, vice president of content at Quantum Economics, this “unprecedented” move may play directly into the hands of Bitcoin and its propagators.
“The Fed’s move to purchase junk bonds, and help prop up so-called fallen angels, is unprecedented,” Bovaird told Decrypt. “Further, it could easily be interpreted as a move to help support the non-investment-grade bonds of companies that have been trading at fundamentally inflated values.”
Bovaird argues that perceived overreach of the Fed may further undermine faith in the financial system.
“A major impetus for creating Bitcoin was developing a new economic system that can function independently of the banks and the government,” he says, “Many people don’t trust either, and the Great Financial Crisis gave them a particularly good reason to be distrustful.”
Toeing a similar line, Mati Greenspan, founder of Quantum Economics, touched upon the Fed’s swelling balance sheet, tweeting, “The most worrying part is the decision to start buying junk bonds from the market. The death of capitalism is complete.”
Economist and co-founder of Real Vision…