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Bitcoin rallying over 200-Day MA, as FED dilutes USD and SEC rejects ETF

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Updated: 31 August 2020

Some news days are slow, and some are not. Today fell in that latter category. Anyone that deals with the news on a day-by-day basis knows that the “best stuff”, the news that will irritate, confuse, or disrupt markets, is usually released either on a Friday, hoping that everyone will miss it, or after close of business on a slow day, once again hoping that people will not care as much.

News about the Fed took time to set in before the market reacted. By expanding reserves, the Fed handed Bitcoin a “bone”, so to speak. It touched off a rally that pushed BTC above $8,600, its 200-Day MA, but right after that reaction, the SEC, in a surprise move, rejected the Bitwise Bitcoin ETF proposal.

A plethora of articles in the financial press were touting Monday as the “Big Day” that the SEC had to stop its foot-dragging exercise with various ETF applications and come clean about allowing retail access to a Bitcoin managed trust. Granted, the general feeling of most observers was that the Fed would never act in the positive. The agency was overloaded with naysayers that would never risk acknowledging the Bitcoin revolution, as if their very lives depended upon it.

The release itself looks like a hurried document, prepared by some scared underling. It cites that the Bitwise proposal was not “designed to prevent fraudulent and manipulative acts and practices”. There has not been an immediate market reaction, unless the present movements in the market are a combined response to both newsworthy items. Such is the puzzlement when various events are contemporaneous.

For the time being, there will be more to come about the SEC’s late night call, but the majority of the analyst community had already noted that now was not the time for a Bitcoin ETF, regardless of whatever excuse the SEC might employ to support its actions. As for the Fed, there is more than enough information on this topic to warrant further review. Per Conidesk: “The Fed’s decision to expand its balance sheet is seen as a long-term positive development for bitcoin by crypto market experts.”

What is the Fed doing? It has basically announced that it will start the printing presses again to expand the money supply via the size of banking reserves in a last ditch effort to put a fire under that illusive economic statistic – inflation. Jerome Powell, the head of the Fed, claims that he needs to expand the balance sheet in order to prevent turmoil in the money markets after we have heard for months that liquidity is not a problem.

Coindesk goes on to say: “Some investors and analysts describe the Fed’s latest operation as round four of quantitative easing (QE) – central bank purchases of government securities or other securities from the market to increase the money supply and encourage lending and investment. The Fed conducted three rounds of quantitative easing between 2009 and 2015. Many observers are of the opinion that the QE programs are inflationary in nature and consider bitcoin as a hedge against such policies.”

Joe DiPasquale, CEO of the cryptocurrency-focused investment firm BitBull Capital in San Francisco, has noted that, in the past when the Fed either lowered interest rates or pursued another one of its quantitative easing programs, it has always been favorable for Bitcoin prices in the market: “We know that that has historically helped bitcoin.”

Another news item that also received coverage was an announcement from UNICEF, the United Nations Children’s Fund, that it would begin accepting donations paid in either Bitcoin or Ethereum. We sometimes forget about acceptance at the point of sale or at online websites as a fundamental driver for Bitcoin and other altcoins, but each bit of good news does have an everlasting effect on the public’s perception of cryptos.

Tomorrow will be another news day, but we now can expect industry reaction to the SEC’s pre-emptive strike and a continuing give-and-take, as the regulator attempts to justify its actions. The Fed actions, however, will last for months, reminding everyone of the true benefit of Bitcoin to the masses – it is a hedge against these kinds of fiat currency dilution measures that central bankers are determined to make. Investors now have an alternative to Gold and T-Bills that can produce sizeable gains, a new way that financial markets can hold central bankers accountable for their actions.