Bitcoin (BTC) has always been the biggest and most successful digital currency in the marketplace. Also known as cryptocurrency, BTC made the biggest inroads into mainstream financial markets. After peaking in value near $20,000 in late 2017, it spent the next three years fluctuating in price.
Bitcoin dropped as low as $3000 during that span of time. Heading into the final few months of 2020, BTC climbed to $13,000. That is when the fun all started. The market value topped $20,000 by year’s end. It exploded into 2021 to surpass the $50,000 mark earlier this month.
Is Bitcoin’s Dramatic Rise Really Tied to US Federal Reserve Policies?
Heading into the final week of February, BTC’s market price is around $54,500. The dramatic increase in value over the past six months has now caught everyone’s attention, both good and bad.
A few financial experts now point to the US Federal Reserve as possibly fueling the fire. Some believe that the consequences of this agency’s policies are pushing private investors towards bitcoin and other cryptos.
Large institutional investors have been driving up the price of BTC during this extended bull run. Yet, small private investors have been jumping on the bandwagon in record numbers as well. The simple fact is that more conservative investments offer little to no return given today’s interest rates.
Private investors looking for an outlet for savings are turning towards bitcoin as a highly speculative investment avenue.
The issue was recently addressed by the Washington Post’s editorial board. One observation included:
“The best reason to focus on bitcoin’s rise is what it tells us about the risks that may be bubbling up amid the Federal Reserve’s commitment to zero interest rates.”
The Fed has justified its actions as a way to stimulate the economy that is struggling through a pandemic. The effort is to move funds towards activities that can create jobs. This is opposed to parking funds in money market accounts or government bonds.
However, the reality of the situation may be different. The lack of viable investments through mainstream vehicles is driving highly speculative investments in bitcoin and other cryptos.
The Post also added a quote from Elon Musk in its editorial report. He recently tweeted:
To be clear, I am *not* an investor, I am an engineer. I don’t even own any publicly traded stock besides Tesla.
However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere.
Bitcoin is almost as bs as fiat money. The key word is “almost”.
— Elon Musk (@elonmusk) February 19, 2021
This was in response to Tesla’s decision to invest $1.5 billion of its treasury funds into bitcoin.
The Post went on to appeal to Janet Yellen as the new US Treasury Secretary as follows:
“We urge her and other regulators to heed what these markets reveal about the real-world consequences of current monetary and fiscal policy – positive and negative, intended and unintended.”
Yet, in the short-term bitcoin still remains in the center of the spotlight. Either side of the debate over the long-term viability do agree on one main driving factor; BTC and cryptos in general are a very speculative by nature.
You need to have the stomach and wherewithal to get on this ride over the long haul.