One analyst said the Federal Reserve could buy equity ETFs to support the U.S. stock market during the next major economic downturn, and crypto researchers say this scenario would indirectly benefit Bitcoin and major digital assets.
Example of Fed stock purchases
ETF senior analyst Eric Balciunas has released a memo arguing that the U.S. stock market has become too big and too politically important to tolerate a prolonged collapse.
Currently, about 55% of Americans own stocks, the highest percentage in the world. An estimated 28 million more people will own stock through Trump accounts. It is predicted that Social Security will run out of funding within 10 years. Taken together, these factors mean that a prolonged bear market would harm the majority of American voters and create intense political pressure to intervene.
“Political pressure to keep stocks out of a prolonged bear market will be very strong,” Balciunas wrote.
He added that Japan and China are already using stock ETF purchases as a crisis tool, and the Federal Reserve itself expanded its toolkit in 2020 to include corporate bond purchases, which had previously been considered outside its purview. He argued that with each major crisis, the definition of acceptable central bank behavior expands.
A survey of 1,000 people found that three in four people expect the Fed to intervene in the next market crisis. Balciunas said that even though economists have not publicly adopted the assumption, it is evidence that investors are already placing it front and center.
The U.S. stock market has grown 68% in five years, adding approximately $6 trillion in market value by 2026.
Impact on cryptocurrencies
Bitcoin and crypto assets will no longer receive direct support from the Federal Reserve. But analysts said indirect transmission could have implications.
Tim Sun, a senior researcher at Hashkey Group, said a prolonged severe bear market would not only reduce portfolio values but also directly damage consumer spending, pension fund stability, corporate credit markets and government tax revenues.
Sun said the price of Bitcoin remains fundamentally linked not only to crypto-specific fundamentals, but also to US dollar liquidity, real interest rates, and stock market risk sentiment.
Sun said the risk premium demanded for volatile assets could decline if investors were convinced that policy support was effectively supporting risk assets. He added that Bitcoin and other major cryptocurrencies stand to benefit from improved liquidity expectations and a broader recovery in risk appetite.
Related: Fed minutes highlight inflation risks as interest rate path remains uncertain
