In a repeat of trading from the early days of the novel coronavirus in March, Bitcoin once again took a tumble on Thursday with a similar situation on Wall Street. This has rekindled an ongoing debate about the use of this cryptocurrency as a store of value. There was a 6.37% decline in the price of Bitcoin as the S&P 500 index also showed large U.S. stocks losing their value by 5.7%. This decline in stocks came a day after an unexpected dour assessment was provided by the Federal Reserve regarding the outlook of the U.S. economy. It was speculated by investors that a possible rise in cases may slowdown the rate of recovery.
It is also possible that some investors have sold off their Bitcoin because it is still regarded as a risky asset, despite having gained by 30%. Some experts believe that the general negative sentiment of traditional markets tends to have an impact on Bitcoin. The plunge in Bitcoin prices on Thursday didn’t come close to the wipeout on March 12th that had reduced its value by 39% as it had become clear to investors in all markets that the coronavirus was expected to take a devastating toll on the global economy.
Thursday’s session once again renewed chatter amongst cryptocurrency analysts regarding Bitcoin and whether it is uncorrelated with traditional assets, whether it should trade in sync with risky assets like stock or if it should be used as an inflation hedge similar to gold. The price of Bitcoin declined on Thursday, just a day after the Fed indicated that for at least three years, joblessness would continue to stay high. This means that the officials are expecting to keep interest rate close to zero throughout 2022. They would also pump out freshly created money worth $120 billion a month into the financial system for the future.
If Bitcoin does work as an inflation hedge, then its price should have a positive impact due to a loose monetary policy. One of the top economic advisors of President Donald Trump, Larry Kudlow said in an interview that the balance sheet of the Federal Reserve was going to increase by $10 trillion till the end of this year. He said that in 2020 alone, the Fed would see their total assets increase by $3 trillion to reach $7.2 trillion. He said he couldn’t understand why the market had sold off.
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