In the Bitcoin and crypto community, there has been plenty of talk in recent days that the US Federal Reserve (Fed) has fired up its money printer again with the Bank Term Funding Program (BTFP) and swap lines for five other central banks around the world, effectively kicking off Quantitative Easing (QE).
Generally, QE is considered one of the most bullish drivers for the Bitcoin price, but the one million dollar question is whether the Fed has actually started QE yet?
Is QE Just Around The Corner?
Jurrien Timmer, Director of Global Macro at Fidelity Investments, takes a different view than the broader market on this. In a Twitter thread, Timmer wrote that a return to QE is probably not yet imminent.
Are we about to see a return to QE? Probably not yet. It’s worth remembering last fall, when the Bank of England (BoE) conducted temporary asset purchases to solve for an asset-liability mismatch similar to what we are seeing in the US now. 🧵 pic.twitter.com/bpafYjmo0A
— Jurrien Timmer (@TimmerFidelity) March 21, 2023
“It’s worth remembering last fall, when the Bank of England (BoE) conducted temporary asset purchases to solve for an asset-liability mismatch similar to what we are seeing in the US now,” the exec at one of the world’s largest asset managers said. As Timmer discusses, the BoE insisted that its temporary gilt purchases were not quantitative easing (QE), and in hindsight, it was right.
In total, the bank bought £19.3 billion worth of gilts, of which £12.1 billion were long-dated conventional gilts and £7.2 billion were index-linked gilts. The purchases were indeed temporary, according to a January 2023 BoE press release.
The bank sold all of its portfolio of temporarily held government bonds after the crisis passed and quantitative tightening (QT) continued, as did interest rate hikes. “Fast forward to today, and we could view last week’s sharp increase in the Fed’s balance sheet as a similar exercise in liquidity provision,” Timmer asserts.
Moreover, he says, a look back to the global financial crisis in 2008 is helpful in classifying the Fed’s moves. Before the Fed began QE in March 2009, it conducted liquidity operations such as Term Asset-Backed Securities Loan Facility (TALF) in late 2008.
“Those programs temporarily boosted the Fed’s balance sheet but were merely liquidity bridges (collateralized loans), although QE did soon follow. Perhaps the BTFP will be the same;” Timmer pointed out, but also noted that interest rates are running high enough to cause pain to the banking system.
Therefore, to combat inflation while keeping the banking system alive, Timmer suggests that the Fed could try to keep long-term interest rates low by managing the yield curve.
The Fed did that during the second half of the 1940s, even as it was raising rates (ever so slightly) and shrinking the balance sheet. So perhaps we should be on the lookout for changes in the Fed’s maturity distribution.
What Does This Mean For Bitcoin?
For Bitcoin and crypto investors, this means that they should not be blinded by the current exuberant euphoria. Today’s Fed rate decision and, more importantly, future projections (dot plot) and statements from Fed Chairman Jerome Powell will be quite crucial in determining whether QE is really around the corner or still a few months away, as Timmer cautions.
At press time, Bitcoin was trading at $28.287, just below the current key resistance zone. A breakout could trigger a move towards $30,000, while a dampener from the Fed could trigger a dip back to $27,000.