The effects of QE on the price of BTC

. 2 min read

What is Quantitative Easing?

Quantitative easing (QE) is a form of monetary policy enacted by a central bank/monetary authority. It is generally considered an emergency measure that should only be implemented when it is not possible to reduce interest rates further.

QE involves the monetary authority purchasing of bonds and other securities from financial institutions. It is generally accepted that QE is only a short term solution that should be wound back after a period of implementation.

The purpose of QE is to increase the money supply in an economy in order to lower the cost of money (lending). These measures then have a flow-on effect with banks being able to lend more to businesses and consumers to fuel economic growth.

There are potential risks associated with QE that include the possibility of high inflation or stagflation (inflation paired with high unemployment). Critics also discuss the ethical issues surrounding the blurring of lines between fiscal and monetary policy and how this affects the independence of the central banks from the government.

QE is often referred to as money printing, however, it is important to note that the money for QE is generated electronically rather than physically.

The history of QE

QE was first implemented in Japan in 2001, and the policy was maintained for 5 years. Although, experts generally considered this to be a failure given the slack of change in the economy throughout and after this period.

The most well-known implementation of QE began in 2008 in response to the GFC (Global Financial Crisis). Since this time, the United States Central Bank increased the money supply by over $4 trillion into the economy through the purchase of a variety of government and non-government debt instruments. This period of QE officially ended in 2014.

QE was also implemented in several other regions after the GFC, including the UK, Switzerland and the EU. All of these were concluded in the following years.

What does QE have to do with Bitcoin?

Many proponents of Bitcoin (BTC) are harsh critics of QE. Unlike with traditional fiat currencies, there will only ever be a maximum of 21 million BTC in existence. This cap is enforced by code,  and this maximum limit is why BTC is considered to be a deflationary currency (expected to have more purchasing power in the future).

Logic suggests that people will generally prefer to hold a deflationary currency rather than an inflationary one. So if the general sentiment is that QE will have a negative effect on the value of USD, then many people may be looking for alternative places to store their value. And if they consider BTC to be deflationary, it may be a logical asset to utilize! More demand = higher price.

On Monday (March 23, 2020) the federal reserve announced that it would launch another 700 billion QE program in response to the Covid-10 pandemic. In a likely response to this news BTC saw an increase in price of over 11% the same day.

So what does this mean for the future of BTC?

This is the age-old question. If past price reactions are anything to go by, there are great times ahead for BTC and crypto in general. Many people have coined the latest moves by the Federal Reserve and other Central Banks “QE infinity” and are expecting this unconventional monetary policy to become conventional.

Although the future price of BTC is not certain if you want to store some wealth in a secure asset, with a fixed supply, and outside of concerning government controls, then BTC is the place to do so!

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