Fed’s Decision to Begin Buying Individual Corporate Bonds Fuels Bitcoin’s Rebound

The Federal Reserve Board (“the Fed”) announced on Monday (June 15) — around 14:00 EDT (or 18:00 UTC) — that, as part of its updated Secondary Market Corporate Credit Facility (SMCCF), it planned to start “buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.” 

The Fed’s press release stated that the SMCCF “will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds.” Until yesterday, the SMCCF had only purchased exchange-traded funds (ETFs).

The press release went on to say that “the Primary Market and Secondary Market Corporate Credit Facilities were established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the CARES Act.”

This move by the Fed — which did not go unnoticed by crypto traders/investors — was not too surprising given the grim view of the U.S. economy presented by Fed Chair Powell in last Wednesday’s FOMC press conference. However, the timing was interesting, coming shortly after last Thursday (June 11), which is when concerns over a second wave of COVID-19 caused U.S. stock indices to post their largest one-day percentage drops since March 16. 

Earlier today, Holger Zschaepitz, Senior Editor at the Economic and Financial desk of the German daily Die Welt and its Sunday edition Welt am Sonntag, noted that the bounce by the world’s major global stock market indices suggests that investors have regained their appetite for risk following yesterday’s announcement by the Fed as well as today’s Bloomberg report, which stated that “the Trump administration is preparing a nearly $1 trillion infrastructure proposal as part of its push to spur the world’s largest economy back to life, according to people familiar with the plan”:

Global mkts switched sentiment to Risk On after news about US mon & fiscal stimulus plans. US & EU Futures along w/Asia stocks rise as Fed unveils another corp-bond buying step; Trump eyes another stimulus w/Nikkei up almost 5%. Bonds drop w/US 10y 0.74%. Gold 1724, Bitcoin 9.5k. pic.twitter.com/ue2gnxMQzE

— Holger Zschaepitz (@Schuldensuehner) June 16, 2020

As you can see from Zschaepitz;s tweet, Japan’s Nikkei 225 has recorded today’s largest gain among the major global stock indices. As Reuters reported, earlier today, “the Bank of Japan kept its monetary settings steady as widely expected but increased the nominal size of its lending packages for cash-strapped firms to $1 trillion from about $700 billion announced last month.”   

Currently (as of 08:46 UTC on June 16), in pre-market trading, here is how U.S. stock futures are doing:

• Dow: +405.00 (+1.57%)
• S&P 500: +34.50 (+1.12%)
• Nasdaq: +405.00 (+1.57%)

As for Bitcoin, according to data from CryptoCompare, at the moment, Bitcoin is trading at $9,493.01, up 4.04% in the past 24-hour period:

It is worth pointing out that yesterday (June 15), around 05:00 UTC, Bitcoin was trading at $9,025, which means that we have witnessed a 5.18% bounce in less than 30 hours.

Yesterday, popular crypto analyst/trader Josh Rager had this to say about Bitcoin’s recent price action:

$BTC

To maintain a bullish perspective price must reclaim $9550

Then reclaim $9800+

Until then, personally feel like the downtrend can continue pic.twitter.com/i3wcMVvZtL

— Josh Rager 📈 (@Josh_Rager) June 15, 2020

Crypto-focused behavior analytics startup Santiment says that despite altcoin season is not here yet:

https://t.co/Osk5YjtTUl

1/ Before $BTC‘s latest pullback and subsequent rebound these past few days, a number of #alts were pumping and had many asking whether #altcoin season was upon us. With this prolonged $BTC consolidation, @santimentfeed has investigated whether traders pic.twitter.com/RSnKhBV8Wu

— Santiment (@santimentfeed) June 15, 2020

2/ are being directed toward smaller market caps and higher risk/reward assets through the lure of #FOMO and other project developments. And based on what we’ve seen through both market cap volume and social crowd behavior, people don’t seem to be ready to buy in to an #alt boom

— Santiment (@santimentfeed) June 15, 2020

As for CryptoTwitter’s reaction to the Fed’s latest monetary stimulus, Scott Melker, a crypto trader at Texas West Capital, offered this accurate and humorous tweet:

Fed is buying everything but the kitchen sink, but only because they haven’t seen the kitchen sink yet.

It’s a nice sink. https://t.co/LfINY51uwD

— The Wolf Of All Streets (@scottmelker) June 15, 2020