Bitcoin surged by thousands of dollars after the U.S. Federal Reserve announced it was “absolutely ready” to rescue the economy. Susan Collins, a key policymaker at the central bank, made these statements, causing the Bitcoin price to rise.
Important News for Bitcoin
This statement by Collins is important for Bitcoin. Although she herself states that the US Federal Reserve does not currently see any acute problems, this news does not come out of the blue.
Central bankers also make such statements to calm the markets in moments when things seem to be going badly. Sometimes this works so well for the financial markets that actual intervention by the US Federal Reserve is not even necessary.
Fundamentally, we should take Collins’ words seriously, as she is a voting member of the Federal Open Market Committee (FOMC), the group of 12 central bankers responsible for the US Federal Reserve’s monetary policy.
And this is important for Bitcoin because research shows that there is a high correlation between dollar liquidity and the price of Bitcoin.
High Correlation Between Bitcoin Price and Dollar Liquidity
In the financial world, “dollar liquidity” refers to the amount of US dollars available for investment worldwide.
Because we operate in a credit-based system, the growth of the dollar supply depends on financial conditions. When the economy is solid and there are few concerns about a recession, it’s easier for businesses and consumers to access new credit.
Do financial conditions deteriorate and risks increase? This also slows lending, as we’ve seen recently. Risks skyrocketed as a result of Trump’s trade war, and this caused a difficult time for the markets.
Now the US Federal Reserve is stating that it will intervene when absolutely necessary, and Bitcoin is logically responding with increases. This gives the market a sense of security.
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