Bitcoin’s ‘Loss-Adjusted Market Cap’ is 87 Percent of $104 Billion

Bitcoinist October 20, 2019
Updated 2019/10/20 at 3:06 PM
4 Min Read

The US Federal Reserve has continued its streak of quantitative easing, by pouring in funds to uphold the confidence that liquidity won’t dry out. The latest sum, $104 billion, is almost close to Bitcoin’s loss-adjusted market valuation.

Tuur Demeester, founding partner at Adamant Capital, and Bitcoin proponent commented on the Fed’s latest liquidity injection.

$104B in QE just today… that’s 87% of Bitcoin’s loss adjusted market cap.

— Tuur Demeester (@TuurDemeester) October 18, 2019

Fed Comes to the Rescue for Short-Term Liquidity

The Fed has issued a series of overnight or longer-term facilities, putting securities on its balance in exchange for fiat. This increases the available funds for commercial banks and is supposed to give confidence that liquidity and interbank payments won’t dry out. For the crypto community, this is a case of “creating money out of thin air.”

Currently, the Bitcoin market cap at prices of $7,966.14, is above $140 billion, a sum that has been injected as overnight repo facilities in just two days this October. The Fed has performed a series of operations to prevent a liquidity panic.

The recent short-term injection is part of a series of interventions that followed a repo facility crisis in September. Due to very conservative requirements for banks to hold cash or highly liquid reserves in case of high stress, banks struggled to fill up their resources. This anomaly led to overnight rates shooting up to as high as 10% annualized.

The source of the crisis may have been the actions of J.P. Morgan, which reduced the cash it held with the Fed by 57% since June. The investment bank was flush with cash, but was obliged by regulations to hold onto it for times of crisis.

Signs of Recession May Boost Interest in BTC

The Fed is also poised for another interest to determine the base interest rate. The rate is already down to 2.25%, and the meeting on October 29-30 will most probably preserve the same rate, though with some expectations for a cut.

At the same time, the US economy remains uncertain, with some signs of a recession looming.

Quick recession and stock market thread

1/ US and German manufacturing PMI’s at levels not seen since the Great Recession

— Gael Sánchez Smith (@sansmithcapital) October 11, 2019

Demand for gold and possibly Bitcoin is seen as increasing in this type of economic climate.

The funds moving through the US economy exceed by orders of magnitude anything that happens within the crypto space. However, some of the liquidity of the past decade has found its way into crypto markets. With the Fed increasing the money available, BTC is an asset type that may be used as a hedge against inflationary pressures.

What do you think about the Fed’s QE interventions? Share your thoughts in the comments below!

Images via Shutterstock, Twitter: @TuurDemeester, @sansmithcapital

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