The announcement raised hope that central banks, including the United States Federal Reserve, are approaching their borders with market turmoil and may soon abandon a tightening policy affecting cryptocurrency and traditional assets this year.
On Wednesday morning, the Bank of England announced that it would begin buying gold in unlimited quantities from that day to stabilize the UK bond market, which had recently become volatile due to concerns that the government’s tax cut plan would put its finances on an unsustainable path. The Bank also said that it would suspend the sale of the bonds planned under the quantitative adjustment programme.
Bitcoin rebounded from a daily low of $ 18550 to $ 19100 following the Bank of England’s intervention. Meanwhile, the British government’s 10-year bond yield fell 28 basis points to 4.12%, and sterling fell nearly 1% to $1.06.
In general, bond purchases are associated with quantitative easing (QE), where central banks “show” money out of nowhere by creating reserves in their balance sheets and then using new reserves to buy securities on the open market and thus injecting cash into the system.
The Bank of England, the Federal Reserve Bank and other major central banks have pumped billions of dollars into the financial system through quantitative easing after the 2020 coronavirus crash, leading to an unprecedented increase in traditional and cryptocurrency markets. Now, however, rising inflation has forced those central banks to retreat and pushed all asset markets sharply lower in 2022. Bitcoin fell below $ 20000 from nearly $ 70 thousand at the end of the 2022.
Although the Bank of England’s recent promise to buy an unlimited amount of long-term bonds seems like a new chapter in quantitative easing, the Bank of England explained that this is a temporary measure aimed primarily at restoring conditions and promised to abandon purchases once the market is stable. At the same time, some members of the cryptocurrency community question whether the Fed will follow suit.
For now, Treasury Secretary Janet Yellen has shown at least a little concern publicly and said last Tuesday that financial markets were doing well and that she saw no signs of concerns about liquidity.