Bitcoin Enthusiasts Can’t Escape the Fed’s Influence

Putting aside for a moment the latest evidence that the too-big-to-fail banks are increasingly confident that they can separate the technology behind bitcoin from the currency itself, this will be an interesting week for those whose enthusiasm for bitcoin includes a belief in the potential and practicality of the actual currency. This week, the financial media is consumed with speculation as to what the Fed will announce on Thursday, and what the effect of any such announcement will be on the stock market. Bitcoin enthusiasts will no doubt be looking on with a kind of bemused frustration as they watch Yellen, et al wrestle with a problem of their own making.

It was always known that at some point the ultra-low interest rate policy that the central bank has been pursuing since the recession would have to come to an end, but continuing until this point has made an exit much harder to execute. Markets have become accustomed to all of that free cash and could throw a hissy fit for a while if it is taken away. What will puzzle the bitcoin community, however, is why people allow the Fed’s deliberately inflationary policies, and their attempts to extricate themselves from them before it is too late, to affect to such a degree the value of their money and investments.

We should be careful, however, not to have too smug an attitude when it comes to this kind of thing. Like it or not, what the Fed decides to do this week will also have a bearing on the value of the bitcoin that you hold, at least in the short term.

The main reason for that is the most basic one of all: pricing. If U.S.-based holders of the virtual currency wish to spend the bitcoin that we hold, then the

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