Bitcoin Off Lows as Bank of England’s Bond Market Intervention Raises Hopes for Fed Pivot

Bitcoin (BTC) recovered from daily lows after the Bank of England (BOE) said it would take steps to address the ongoing liquidity crunch in the government bond market.

The announcement raised hopes that central banks, including the U.S. Federal Reserve (Fed), are nearing their pain threshold concerning the ongoing market turmoil and might soon abandon the policy tightening that has roiled crypto and traditional assets this year.

The BOE on Wednesday morning said it would begin buying long-dated gilts in unlimited quantities from Sept. 28 to stabilize that country’s bond market which has recently turned volatile on concerns that the government’s plan to cut taxes will put its finances on an unsustainable path. The bank also said it was suspending planned bond sales under its quantitative tightening program.

Bitcoin bounced from the daily low of $18,550 to $19,100 following the BOE’s intervention. Meanwhile, the yield on the 10-year U.K. government bond fell by 28 basis points to 4.12% and the pound slipped nearly 1% to $1.06.

Bond purchases are typically associated with quantitative easing (QE), whereby central banks freely conjure money out of thin air by creating reserves on their balance sheet and then use those new reserves to snap up securities from the open market, thereby injecting cash into the system.

The BOE, Fed, and other major central banks poured billions of dollars into the financial system via QE in the aftermath of the coronavirus-induced crash of 2020, triggering an unprecedented bull run in crypto and traditional markets. Now, however, rampant inflation has forced those central banks to reverse course, sending asset markets across the spectrum sharply lower in 2022. Bitcoin has been more than halved to less than $20,000 from just shy of $70,000 late in 2021.

While the BOE’s latest pledge to buy unlimited long-duration bonds looks like a new bout of QE, the bank has made it clear that the move is only a temporary one mainly aimed at restoring orderly conditions. It’s promised to unwind the purchases once the market stabilizes. Meanwhile, some in the crypto community wonder whether the Fed will follow suit.

For now, Treasury Secretary Janet Yellen – at least publicly – showed little concern, saying late Tuesday that financial markets were functioning well and claiming to see no signs of liquidity worries.