Digital Assets: Powell Hints at Additional Fiscal Support; Bitcoin to Gain

May 14, 2020 | Digital Assets, News

Fed chair Jerome Powell triggered a 517-point drop in the Dow after he warned of permanent economic damage without more stimulus.

Federal Reserve Chair Jerome Powell spooked the markets when he came out Wednesday with a highly pessimistic outlook on the pandemic-struck U.S. economy. He said that additional stimulus would be perhaps needed because of “significant downside risks.”  The Fed chief’s view, if implemented, could prove bullish for an anti-fiat, non-correlated asset such as bitcoin. (MARKETS INSIDER)

More stimulus through deficit spending

“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” Powell said.

Meanwhile, House Democrats on Tuesday proposed a $3 trillion virus relief package. It includes stimulus checks of up to $6,000 per family. The proposal may be stillborn because of opposition by the Senate Republicans. However, it indicates the thinking on the political ground.

The debasement of fiat currency

The massive money-printing stimulus measures, both underway and more to come, indicate a boost in money supply, a debasement in the purchasing power of current fiat money, and possibly inflationary conditions down the line.

These macroeconomic conditions are tailor-made for fresh investor interest in ‘restricted supply’ assets such as gold and bitcoin. These are also safe-haven assets in terms of economic turmoil.

Paul Tudor Jones and bitcoin

Legendary macro investor Paul Tudor Jones startled the markets with his recent announcement of an investment in bitcoin.

“We are witnessing the Great Monetary Inflation — an unprecedented expansion of every form of money, unlike anything the developed world has ever seen,” he said to CNBC, referring to his estimate that $3.9 trillion of money had been printed since February.

“It’s a great speculation. I’ve just got something … just over 1% of my assets in bitcoin,” Jones said. “Maybe it’s almost two. That seems like the right number right now.”

“The best profit-maximizing strategy is to own the fastest horse […] If I am forced to forecast, my bet is it will be bitcoin,” Jones wrote earlier in a market outlook note.

Negative interest rates

The specter of negative interest rates looms over the U.S., however. Even President Trump demanded on May 12 that the country should take advantage of this phenomenon – a “gift” to other nations.

However, Powell brushed aside the idea saying it “is not something we’re looking at.”

Even so, the possibility cannot be entirely eliminated.

Negative interest rates can be hugely bullish for gold and bitcoin.

Bitcoin is past its halving

Meanwhile, bitcoin is free of the overhang of its halving, and the cryptocurrency appears to have already discounted it when it fell recently from $10,500 in February to $3,987 in early-March. Interestingly, investors quickly bought into that fall, and bitcoin is currently trading at $9,348.

Technically, bitcoin is on the threshold of breaking out of an almost year-long downward channel. Further, momentum appears to be improving with the 20-week EMA golden-crossing above the 50-week EMA.

A key resistance looms at $10,500, however.  A breach of that line could send the crypto into a bull orbit.

Related Story:   Digital Assets: Paul Tudor Jones to CNBC on Bitcoin: “It’s a Great Speculation”                                                

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May 21, 2020

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