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BTC Analysts pointed out that if the U.S. central bank steps in to support the US$75 trillion stock market, the cryptocurrency market may benefit from increased liquidity because the stock market is \"too big and important to fail.\"
The market value of the U.S. stock market has increased by 68% in the past five years, and has increased by about $6 trillion so far this year. However, analysts and experts, including gold bull Peter Schiff, warned that years of rapid growth could pose a hidden danger for a sharp correction in the market.
This correction could prompt the Fed to \"break decades-old precedent\" and support stocks by buying stock ETFs. At the same time, other analysts said the resulting increase in liquidity could create a favorable environment for cryptocurrencies.
Alvin Kan, chief operating officer of Bitget Wallet, said: \"Once the Federal Reserve steps in to cut interest rates, expand its balance sheet or even purchase ETFs, cryptocurrencies will often enter a medium-to long-term upward trend, similar to 2021, as risk appetite rebounds, funds flow back into high-beta assets.\"
Stocks are deeply embedded in U.S. households
Analysts pointed out that 58% of Americans own stocks, so \"political pressure to avoid a prolonged bear market in the stock market will be very strong.\" In 2020, the Federal Reserve purchased corporate bond ETFs during the COVID-19 epidemic as the \"buyer of last resort\" to restore frozen liquidity in credit markets. The unprecedented move led to the purchase of US$8.7 billion worth of ETFs, helping limit the damage caused to the economy by the epidemic.
\"I think there is a strong possibility that the Fed will buy stock ETFs to support the market in the next major recession, and this will become routine practice in the future,\" analysts added. Central banks in China and Japan are currently increasing liquidity by authorizing intermediaries to use public funds to indirectly purchase stock ETFs, and the United States may follow suit. \"This is just a by-product of the \'nothing can stop this train\' money supply expansion and debt binge, a trend that seems irreversible, especially in the United States.\"
Cryptocurrencies are still pegged to US dollar liquidity
Tim Sun, a senior researcher at HashKey Group, said that a long-term and severe bear market \"will not only erode investor wealth, but will also directly impact consumer spending, endanger pension stability, hinder corporate credit expansion and reduce tax revenue.\" Although cryptocurrencies will not receive direct support from central banks,\"their macro pricing is still closely related to dollar liquidity, real interest rates, and stock market risk sentiment.\" He added: \"Once market participants are convinced that the policy floor has effectively supported risky assets, the risk premium required for highly volatile assets will be compressed. As a result, Bitcoin and mainstream crypto assets are expected to benefit significantly from improved liquidity expectations and a broad recovery in risk appetite.\"
There is a strong incentive to fall sharply at the bottom
BTSE Director of Operations Jeff May said: \"This structural support helps create a more resilient macro background and ultimately benefits cryptocurrencies \'role as a growth and diversified asset in global liquidity expansion.\" At the same time, he also pointed out that in a downturn, given that inflation is still high,\"it is difficult to see the Fed printing more money to stimulate the economy, but there are other tools available.\"
