If US Stock Market Collapses, Will Crypto Smile?...Fed's 'Money Printing' Scenario Surges

▲ Federal Reserve (Fed), interest rates, economic indicators/AI generated image

Observations suggest that if the US stock market, valued at $75 trillion, falls into a bear market, the Federal Reserve could take the drastic step of purchasing stock ETFs. Analysts predict that if money is injected back into the market, cryptocurrencies, including Bitcoin (BTC), could enter a medium-to-long-term upward trend similar to that of 2021.

According to Cointelegraph, a cryptocurrency specialized media outlet, on July 9 (local time), the US stock market has grown by 68% over the past five years, with its market capitalization increasing by approximately $6 trillion this year alone. While market experts like Peter Schiff warn of a potential large-scale correction after rapid growth, Bloomberg ETF analyst Eric Balchunas predicts that the Fed could break decades of tradition and purchase stock ETFs in the next major downturn.

Balchunas analyzed that with 58% of Americans owning stocks, political pressure to prevent a prolonged bear market would intensify. During the COVID-19 crisis in 2020, the Fed purchased $8.7 billion worth of corporate bond ETFs to provide liquidity to the frozen credit market. He stated, "It is highly probable that the Fed will purchase stock ETFs to support the market in the next major downturn, and this will become a common policy tool in the future."

Alvin Kan, COO of Bitget Wallet, analyzed that the cryptocurrency market could benefit if Fed intervention is followed by interest rate cuts, balance sheet expansion, and the purchase of specific ETFs. Kan stated, "When the Fed intervenes, risk appetite returns, and funds move to high-beta assets, leading cryptocurrencies to enter a medium-to-long-term upward trend similar to 2021."

Tim Sun, a senior researcher at HashKey Group, pointed out that a prolonged bear market in the $75 trillion stock market would not only reduce investor wealth but also shake consumption, pension stability, corporate credit expansion, and tax revenues. He stated, "Bitcoin and major cryptocurrencies are fundamentally linked to dollar liquidity, real interest rates, and stock market risk appetite. If confidence builds that policy will support the bottom of risky assets, the risk premium on volatile assets will decrease, and cryptocurrencies can significantly benefit from improved liquidity and restored risk appetite."

However, there was also a counter-argument. Jeff Mei, COO of BTSE, stated that while it would be difficult for the Fed to stimulate the stock market by printing money given the ongoing high inflation, other policy tools could be utilized. The possibility of the Fed purchasing stock ETFs is currently at the analyst prediction stage, and cryptocurrencies are not direct beneficiaries of central bank support.

[Key Summary of the Article]

-The US stock market has grown to a size of $75 trillion, expanding by 68% over the past five years and approximately $6 trillion this year.

-Balchunas predicted that the Fed is highly likely to purchase stock ETFs in the next major stock market downturn.

-Analysts analyzed that if the Fed's liquidity expansion materializes, Bitcoin and major cryptocurrencies could benefit.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*