European Central Bank pumps €500 billion into the economy, is Bitcoin the laughing third?
The European Central Bank (ECB) will pump €500 billion into the economy. The bank came yesterday with news about its monetary strategy. This will be achieved through the Pandemic Emergency Purchase Program (PEPP).
In this way they want to stimulate the economy and try to limit the damage caused by the corona crisis. It seems to be a measure that only plays into the hands of Bitcoin (BTC).
European Central Bank
With the help of Christine Lagarde, the ECB is quietly carrying on with what it was doing: turning the economy into its own hands. In addition to the EUR 500 billion that they are setting aside (or: creating), they also announced that the support programme would be extended by nine months to March 2022.
In perspective, Bitcoin’s total market capitalisation is currently EUR 271 billion.
This brings the size of the overall programme (the PEPP) to €1.85 billion. In a transcript of the meeting, the ECB writes the following:
„In any event, the Governing Council will continue to make net purchases until it considers that the coronavirus crisis phase is over“.
In addition, banks are allowed to raise loans equal to 55% of their value (instead of 50%), while interest rates are 0.00%, 0.25% and -0.50% for refinancing projects, marginal loans and the so-called deposit facility respectively.
What exactly does this mean? Put simply, the European Central Bank (in its own words) is trying to maintain price stability. In order to ensure that the economy can continue to run, they are pumping new money into the sectors (by buying up bonds and keeping interest rates low).
If the ECB carries on like this, the central bank will have 40% of the euro area’s gross domestic product in bonds on its balance sheet next year, reports De Telegraaf based on figures from DWS.
Moneyprinter go brrrr
Making a parallel with Bitcoin is inevitable. Where the ECB proactively pulls the strings to ’save the day‘, it only pushes the economy further into trouble. Stretching the balance sheet and taking new money out of the parts through loans and other constructions increases the total money supply.
Although this money does not directly affect the real economy, it does result in bubbles. Where the crisis is causing deflation in the market, the ECB is trying to solve this with inflation by issuing more debt securities. Debt, deflation and Bitcoin Code money as a means of power: it is something that does not have a good name in a Bitcoin economy.
Bitcoin and the Austrian School
Bitcoin was conceived to act as hard money without a central authority to determine the issue. It is scarce: the supply of coins cannot be stretched by Lagarde and consorts. This makes it a hedge against inflation for many (retail) investors.
Bitcoin is only getting scarcer and scarcer. Whereas the ECB only pumps more money into the economy with every crisis, the opposite is happening with Bitcoin. Every four years, the issuance of new coins goes through half. At present it is 6.25 BTC per ~10 minutes, a figure that will rise to 3.125 BTC in 2024.
There is a clear contrast between the economic vision of the Austrian School and that of the Keynesian central banks. The latter is full of control, power, straw men and centralisation. The Austrian School is known for its organic balance, productivity and low time preference.