Digital Currency Revolution Series: The Potential Impact of Federal Reserve’s Monetary Policy on Cryptocurrencies in 2020

In current financial conditions across the globe, we are witnessing the lingering concerns over growing debt burden that could potentially lead to another financial crisis. To substantiate this stance, it is quite evident that increasing quantitative easing in the last decade or so, it is most likely to surpass $255 trillion by the end of this year, as per the reports of IIF, IMF and BIS that implies that this mammoth figure projects each person on the planet would carry $32,500 in debt on his shoulder. The increased debt problem is predominantly owing to the excessive quantitative easing mechanism.

Amid such a bizarre scenario, Fed has made the announcement of repurchase operations (repo), intending to infuse billions of dollars into the markets. Consequently, the potential effect on Bitcoin would be constructive since such a hurried monetary move seems unlikely to affect a decentralized cryptocurrency.

And most importantly, there have been ‘hush-hush talks’ that a top Fed official has recently mentioned that the US Central Bank is pondering over the idea of a digital dollar, while Democratic and Republican members of Congress communicated with the Fed Chairman Jerome Powell to know the implications of such a revolutionary adoption. 

In reply, the Chairman of the Federal Reserve, Powell, said to the US representatives French Hill and Bill Fosters, who had asked whether the Federal Reserve plans to launch a digital currency. In a descriptive letter in reply, he clarifies that they have observed the trends of digital currencies but they don’t have any plans of launching at this juncture reassuring the robustness of the demand for their currency.

But most importantly, he added in the letter: the Federal Reserve is not currently having any plans of CBDC (Central Bank Digital Currency) but will continue to analyze the potential benefits and costs of central bank digital currencies. 

At the same time, the former chairman of the CFTC (Commodity Futures Trading Commission) has advocated for the U.S. to establish and circulate a dollar-based digital token and ledger.

Now, the repo operations drive the financial markets amid the fragile fundamentals, while the mechanism of currency infusion is much bigger than Bitcoin’s entire market capital value. Huge money flow within the short span of time may attract safe havens among the investors avenue, in such times, who are dubious on conventional markets, robust crypto-assets like pioneer cryptocurrency ‘bitcoin’ would be keen on capitalizing on the safe haven sentiments. Hence, these sentiments coupled by the underlying driving forces will have high tendency to bolster the bullish prices in 2020.