ECB Signals ‘Moderate’ Slowdown in Asset Purchases; Bitcoin Rises

Bitcoin was higher Thursday after the European Central Bank (ECB) said it would reduce the pace of asset purchases “moderately” under the Pandemic Emergency Purchase Programme (PEPP) program for monetary stimulus.

“The Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases,” the ECB said in a statement.

Cryptocurrencies and risky traditional assets like stocks have been major beneficiaries of the liquidity-boosting asset-purchase programs launched by the ECB, Federal Reserve and other major central banks following the coronavirus-induced crash of March 2020. So any reduction in the pace of these “quantitative easing” programs, known as QE, might prove a headwind for the bitcoin market.

But the limited scope of the ECB’s latest move shows the level of caution monetary policy makers are taking as they unwind the approach.

Bitcoin rose 1.8% Friday to $46,990.

The ECB snaps up assets worth €20 billion per month under its regular asset purchase program. Further, it has been purchasing government bonds worth €80 billion ($94.7 billion) a month under the PEPP scheme for over a year to contain the economic fallout from the coronavirus pandemic. According to Reuters, analysts expect the central bank to dial back purchases to €70 billion or €60 billion in the coming months.

While the announcement suggests a move away from the pro-easing bias, the details show just how accommodative the ECB remains.

The central bank said it will continue to conduct PEPP purchases in a total envelope of €1,850 billion until at least March 2022 – indicating that the overall size of the program hasn’t changed – while maintaining the deposit facility rate, main refinancing rate, and marginal lending facility rate unchanged at historically low levels of -0.5%, 0.00%, and -0.50%, respectively. Further, it will continue to buy €20 billion under the asset purchase program.

“The optics may suggest a more hawkish tilt, but essentially this will be balanced out by continued (and likely higher) regular APP [asset purchase program] once the PEPP envelope expires in March next year,” ForexLive’s Justin Low noted.

So bitcoin could recover lost ground during the day ahead, as investors dig deeper into the data. The euro is struggling to rise despite the hawkish ECB. The euro-dollar exchange rate saw a minor pop from 1.1824 to 1.1840, in a knee-jerk reaction, only to fall back to 1.1810.

Capital in crypto markets is mercenary and tends to overreact, as Messari’s Mira Christanto noted.