In the financial market in recent years, the Federal Reserve's monetary policy has been a hot topic among investors. With the changes in the global economic situation, the Federal Reserve's adjustment of interest rate policy has had an increasingly significant impact on the market. Especially in the context of interest rate cuts, investors have launched a heated discussion on the safe-haven properties of different assets. In this discussion, the comparison between Bitcoin and gold has become the focus. Although Bitcoin, as an emerging digital asset, has attracted the attention of a large number of investors, it is still not comparable to gold in terms of safe-haven properties and value storage capabilities.

First, we need to clarify the background and significance of the Fed's interest rate cut. The reduction in interest rates is generally seen as a means of stimulating the economy, aiming to promote consumption and investment by reducing borrowing costs. However, the effect of interest rate cuts is not static. In the current economic environment, the magnitude and frequency of interest rate cuts are constrained by a variety of factors, including inflation, the performance of the job market, and changes in the international economic situation. For example, after the outbreak of the epidemic in 2020, the Federal Reserve quickly took interest rate cuts to respond to the economic recession. However, as the economy gradually recovered, inflationary pressures began to emerge, and the room for interest rate cuts gradually narrowed.

At the same time, investors' enthusiasm for Bitcoin is also growing. As a decentralized digital currency, Bitcoin has gained more and more attention and recognition around the world. Some investors regard it as "digital gold" and believe that it has similar value storage characteristics as gold. However, in reality, Bitcoin is extremely volatile, and its price is affected by multiple factors such as market sentiment, policy changes, and technological progress, and often fluctuates violently. This instability makes it difficult for Bitcoin to be compared with gold in terms of its safe-haven asset attributes.

As a traditional safe-haven asset, gold has a long history and stable market demand. When economic uncertainty intensifies, investors often choose gold as a tool to preserve value. According to historical data, in situations such as financial crises and geopolitical tensions, the price of gold tends to remain stable or even rise against the trend. For example, during the global financial crisis in 2008, the price of gold climbed all the way and became the first choice for investors to avoid risks. In contrast, Bitcoin's performance in similar situations appears relatively fragile, lacking sufficient market foundation to support its status as a safe-haven asset.

In addition, from the perspective of liquidity and market acceptance, gold still has an advantage. Although the trading volume of Bitcoin has gradually increased, its market size is still insignificant compared with the global gold market. Gold is widely used in various financial products and transactions, with a deep market foundation and wide recognition. As an emerging asset, Bitcoin has not yet reached a universal level of acceptance, especially in some countries and regions, where it still faces regulatory and legal uncertainties.

In terms of investment strategy, many institutional and individual investors tend to consider the stability and value preservation of gold when allocating assets. For example, many pension funds and insurance companies use gold as an important component in their investment portfolios to hedge against market risks. In contrast, Bitcoin's investment strategy appears to be more risky and speculative, suitable for investors who are willing to take high risks. For most conservative investors, gold is undoubtedly a safer choice.

However, despite the popularity of Bitcoin in the market and the continuous development of its technical foundation and application scenarios, its attributes as a safe-haven asset are still questioned. From a technical perspective, Bitcoin's blockchain technology does provide it with decentralization and transparency, but this is not enough to compensate for the risks brought by its price fluctuations. Among the multiple uncertainties faced by investors, gold's historical proof and stability are obviously more attractive.

From a psychological perspective, investors’ trust in gold stems from its thousands of years of history, while Bitcoin’s history is only a little over a decade old. Although Bitcoin is technologically innovative, its historical accumulation as a value storage tool is obviously not as good as gold. Therefore, when faced with a choice, many investors are more inclined to choose gold as a safe-haven asset.

In the future market, the Fed's monetary policy will still have a profound impact on the market performance of Bitcoin and gold. If the Fed continues to maintain a low interest rate policy, it may stimulate investors' demand for risky assets, thereby driving up the price of Bitcoin. However, this does not mean that Bitcoin can replace the status of gold. On the contrary, as a traditional safe-haven asset, the value and status of gold will remain stable.

In summary, although Bitcoin has emerged in the field of digital assets and attracted the attention of many investors, it still cannot compare with gold in terms of safe-haven properties and value storage capabilities. Although the Fed's interest rate cut policy has brought short-term stimulus to the market, in the long run, investors still need to carefully consider their choice of asset allocation. The stability and historical status of gold will continue to dominate the market of safe-haven assets. In the face of future uncertainties, choosing gold as a value-preserving tool may be a wiser choice.

The cryptocurrency market has experienced ups and downs recently, but in comparison, the global financial market has shown a more painful struggle. The U.S. stock market has plummeted continuously, global stock markets have fallen sharply, the production cut agreement has broken down, and crude oil prices have plummeted, further triggering the circuit breaker of the U.S. stock market. The panic index has reached a new high. The impact of the epidemic has far exceeded an ordinary health crisis and is bringing more uncertainty shocks to the global economy.
On March 10, Gyro Informal Talks invited Mikko, a well-known monetary economist and founder of Zhibao, to focus on recent hot topics, including the impact of the Federal Reserve's interest rate cut on global asset prices including cryptocurrencies, how many times the Federal Reserve will cut interest rates this year, how much room there is for interest rate cuts, why the United States will not implement "new infrastructure" like China, and what are the key points worth paying attention to in residents' asset allocation, etc., which started a wonderful dialogue.
When economic recession comes, it is difficult for my country's market to remain immune
1. The three major U.S. stock indexes all fell by more than 7% on Monday, with the Dow Jones Industrial Average plummeting more than 2,000 points in one day, triggering the first level of the circuit breaker mechanism. This is the second circuit breaker since the introduction of the stock index circuit breaker mechanism in 1987. The market is divided on the cause of the U.S. stock market crash last night, but generally points the finger at OPEC (Organization of Petroleum Exporting Countries) and Russia for failing to reach a new production cut agreement. How do you view the market's response to this black swan event? Will the market recover after digesting the impact of falling oil prices? How much will A-shares be affected?
Mikko from Zhibao: It is difficult to attribute the decline, but it is definitely not driven by a single factor. The main reason is that the uncertainty of the epidemic is too great and the economic impact is far-reaching. Crude oil is just a reflection of market sentiment. In fact, commodity demand will tend to be sluggish when the economy shrinks, and falling oil prices are beneficial to consumers, not completely negative. The market has rebounded a bit today. Both A-shares and US stocks performed well before the market opened. The trend of A-shares is relatively independent. The reasons are shown in the figure:
The vertical axis is the number of infections relative to the country's population, and the horizontal axis is time (weeks)
The early stage (first stage) refers to countries where new cases have been reported but the number of cases is increasing slowly, such as the Netherlands (265 cases) and the United Kingdom (273 cases); the acceleration stage (second stage) refers to countries where the number of new infections is large and increasing day by day, but the number of cures is relatively limited, such as the United States (537 cases), Japan (502 cases), Spain (673 cases), and Germany (1040 cases) and France (1126 cases) with more than 1,000 cases; the accumulation stage (third stage) refers to countries where the number of new infections has slowed down, the absolute number of new cases is still large, but the number of cured cases is gradually increasing, such as South Korea (7382 cases), Italy (7375 cases) and Iran (6566 cases); the recovery stage (fourth stage) refers to countries with fewer new cases per day and a high number of cured cases, such as China (80,735 cases).
At present, the epidemic in China has been effectively controlled, but there is still great uncertainty in developed countries, so the market performance of developed economies will be worse than that of our country. However, I believe that the early differentiation trend of the market is based on the severity of the epidemic in various countries, but if the market pricing eventually switches to the issue of economic recession, it will be difficult for our market to remain immune. However, the current market focus is still on the out-of-control of the epidemic and liquidity risks. At present, these two major risks are not seen in our country.
2. Is the continued impact of this epidemic on the U.S. and even the global economy more serious than we imagined? Compared with the impact of major economic emergencies in previous years, how has the current economic background changed?
Mikko from Zhibao: The epidemic is an epidemic, and economic recession is an economic recession. There is a causal relationship between the two, but the epidemic factor is more prominent in the market's current pricing.
Controlling the epidemic and economic growth are completely contradictory. Economic growth depends on liquidity, and logistics and human flow are also important, but controlling the epidemic requires curbing human flow and even logistics. The epidemic has dealt a fatal blow to global supply, liquidity, and market confidence. Since the future direction of the epidemic is difficult to predict, it is difficult for economists to comprehensively consider its negative impact, which is completely different from the impact of disasters such as major earthquakes.
The last financial crisis was actually a liquidity crisis. After the asset price fell, some financial institutions sold off these real estate assets. At the same time, the funding parties of the financial institutions withdrew funds. It was equivalent to your assets plummeting, and your creditors were still collecting debts. The balance sheet shrank sharply and the financial system collapsed completely. In this crisis, Powell talked about the supply chain, which was a series of chain reactions caused by the sudden stop of production activities - the stagnation of the supply chain/industrial chain led to the suspension of imports and exports, the decline in production capacity caused a supply shock, and the reduction in residents' going out caused a huge shock in the service industry. It was an all-round supply/demand blow, not a problem that first appeared at the financial level.
The nature of the crisis is different. Sometimes it is the financial system, such as bank runs; sometimes it is an asset bubble, such as the real estate and Internet bubbles; sometimes it can be foreign debt or inflation. Specific issues need to be analyzed specifically.
The sharp drop in US stocks reflects market concerns
The Fed’s rate cut has limited effect so far
3. At 10:00 a.m. on March 3rd, Eastern Time (23:00 Beijing Time on the same day), the Federal Reserve announced an emergency rate cut of 50 basis points to alleviate the economic impact of the COVID-19 pandemic. This is the largest emergency rate cut by the Federal Reserve since the 2008 financial crisis. The last time the Federal Reserve cut interest rates by 50 basis points was on October 8, 2008, when the bankruptcy of Lehman Brothers in September caused a huge market shock. Both the timing and magnitude of the action exceeded market expectations. How do you evaluate the Federal Reserve's actions this time?
Mikko from Zhibao: It was unexpected and unreasonable. The rate cut was completely unexpected by the market in terms of speed and magnitude. Powell himself probably did not expect that he would need to use an emergency rate cut of 50 basis points to calm the panic in the US stock market. In January, he was still optimistic about the economy, but he rushed to support the market after the G7 meeting. The main reason was that the G7 meeting stated that it would work together to fight the epidemic. The Fed was just taking the initiative, and Japan and Europe would follow suit.
4. However, the financial market does not seem to be buying into the rate cut. After the news of the Fed's drastic rate cut came out, the three major U.S. stock indexes fell after a short-term rise. The Dow Jones Industrial Average fell by more than 200 points at one point, and the U.S. dollar index also fell all the way below the 97 mark, setting a new low in nearly two months. How do you evaluate this market reaction? How much effect does the 50 basis point rate cut have? Is the Fed's move this time a correct one?
Mikko from Zhibao: Monetary policy has little effect on potential economic growth. This is what Powell himself said last year. He called on the US government, Congress and the Treasury Department to do more. The market is always right. The market's reaction is telling the Fed that your interest rate cut not only has no positive effect, but even exacerbates market concerns. Whether from the perspective of policy authorities or market participants, this is not a correct move. The beneficiary is the Treasury Department, because lower interest rates are conducive to lower government debt costs.
The US central bank is about to reach zero interest rates, and fiscal stimulus will be launched in the election year
5. After the Fed cut interest rates, Trump sent three tweets in a row urging the Fed to continue cutting interest rates. He seemed to be dissatisfied with the rate and magnitude of the rate cut. Does the Fed still have enough room to cut interest rates? What risks will be caused if the rate cut is too fast?
Mikko from Zhibao: There is not much room left. There are only 4-5 times left before reaching zero interest rate. The risk of cutting interest rates too quickly is that there is only a little room for cutting interest rates. Once it is used up, other monetary policy tools will have to be activated, such as helicopter money. Zero interest rate means that the central bank cannot cut interest rates further, because further interest rate cuts may cause residents to convert their negative interest rate assets and deposits into cash. In addition, if a bank obtains a negative interest rate from the central bank, it will not be able to provide depositors with a positive interest rate, and its own interest rate spread will narrow, resulting in profitability problems. The Federal Reserve may use unconventional tools that have been used before after cutting interest rates to 0, such as quantitative easing, forward guidance, yield curve control, etc.
6. The market generally believes that the Fed's interest rate cut will lead to a wave of interest rate cuts in major global economies, including the G7. Is this a virtuous cycle? The European Central Bank and the Bank of Japan already have negative interest rates. To what extent can the adjustment of monetary policy to increase liquidity be effective in boosting the economy?
Mikko from Zhibao: It will not be a virtuous cycle. The policy space in Europe and Japan has been exhausted. They are both in the policy dilemma of negative interest rates. Adjusting interest rates will not boost the economy much. Cars will not start just by filling up the tank, and people will not increase their debts significantly because of low interest rates. The key is that you cannot increase spending in the current environment, and you may even have to reduce spending. The reason is simple. Some companies are already heavily in debt, and the household sector may also have high mortgage pressure. Therefore, lowering interest rates may not necessarily lead to an overall expansion of private sector spending, but the government is not bound by debt and can take the initiative to spend to promote GDP growth.
7. In contrast, China has proposed the "new infrastructure" initiative to hedge against the epidemic and economic downturn. In addition to the traditional "rail, road and air" construction, it has also proposed to accelerate the construction of new infrastructure such as 5G networks and data centers. How do you view the effect of this economic initiative? Can this model be used as a reference by the United States?
Mikko from Zhibao: The only way is fiscal spending. The spending process in the United States is different from that in China. All spending must be approved by Congress. Look at how much money Trump has spent on the virus. The media has counted the investment scale of key projects announced by some provinces and cities in my country in 2020, which will reach 25 trillion. Two systems and two environments. Everyone wants to rely on finance. Europe wants Germany to increase fiscal spending. Japan has been debt-driven. The United States has also been calling for helicopter money. It is also an election year, and it will eventually resort to fiscal stimulus to stimulate the economy.
Fiscal spending will have positive effects, but it will come at a high price, which is an unsustainable debt stock. In other words, investors initially worry about economic growth, and then you use debt to buy growth, but investors start to worry about your debt.
Helicopter money is equivalent to negative income tax. During elections, politicians have to find ways to win votes, and citizens like to give out money.
Not good for Bitcoin
Gold is gold, Bitcoin is Bitcoin
8. After the news of the rate cut was released, the price of gold soared, proving once again that it has been recognized as a safe-haven asset. However, Bitcoin, which has a certain linkage with gold and is known as digital gold, has not shown obvious price performance. Despite this, the crypto market still has great expectations for the price of Bitcoin. It was born in the last round of financial crisis, and its attributes as a safe-haven asset and a risky asset have always been controversial. Do you think the current unstable economic environment is a good thing for Bitcoin?
Mikko from Zhibao: It is not a positive news. Bitcoin is at most an alternative asset. Just because it is similar to gold does not mean it is gold. Gold once existed as a settlement currency between sovereign states in the international monetary system.
Bitcoin cannot even enter the balance sheet of financial institutions. It is not a thing of the same dimension. Gold is gold, and Bitcoin is Bitcoin.
9. When the interest rate cuts come, how will mainstream asset prices perform? If the real economy cannot benefit from monetary easing, the financial market may become the biggest beneficiary. Will it give rise to a new round of asset bubbles? What should residents pay attention to when allocating assets?
Mikko from Zhibao: We are now in a period of serious asset bubbles. Treasury bonds, stock markets, corporate bonds, ETFs, everything is very crowded. Liquidity does not necessarily have to be removed. It can also be deleveraged (disappeared) and de-bubbled. Money can be created out of thin air through debt. If the money expanded through debt cannot find a rate of return, then the debt can be repaid by shrinking the balance sheet (borrowing money to invest in stocks, and selling stocks to repay debts if the stock price does not rise).
There will be opportunities, but not now. The market needs to vent its panic, and after venting, it will start to rethink the future allocation direction. For example, developed countries are now very dependent on the supply chain support of emerging markets and Asian countries. After this round of epidemic, they will definitely start to rethink the vacuum of their own industrial chain and value chain, and then there will be new investment opportunities.
Question from the audience:
1) Is this a financial crisis?
Mikko from Zhibao: It depends on how you define a financial crisis. I think it can only be considered a market panic caused by the collapse of asset prices, not a financial crisis, because liquidity, financial institutions, private enterprises, and bond markets have not collapsed completely, and they are not at the same level as the previous European debt crisis and the 2008 financial crisis. However, the situation may change every day, so I need to monitor the market every day recently.
2) Can I buy some gold now?
Mikko Zhibao: The market has been very volatile recently. For example, in the case of precious metals, intraday fluctuations can basically kill many leveraged traders. It is recommended that beginners do not invest their money in it. Even if you have more than five years of experience in trading commodities like gold and silver, your positions can be liquidated in minutes. The same is true for U.S. stocks. There is no need to find excuses for the market every day. The reason for market fluctuations may simply be that the market needs to fluctuate.
Holding cash is also an investment, and less loss means profit.

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