The Federal Reserve Should Buy Bitcoin

Quantitative easing (QE) is a term used to describe when the Federal Reserve buys assets from private markets. Typically, the Fed purchases longer-dated bonds, including Treasury notes and mortgage-backed securities (MBS), but during the pandemic, it has even purchased corporate junk bonds. It does this for a variety of reasons, including (but not limited to) lowering interest rates, liquifying the banking system, ensuring proper functioning markets, and inducing a wealth effect. Academics and market participants have debated both the merits and effectiveness of QE since the Global Financial Crisis. Whether one believes in the effectiveness of QE or not, the goal is ultimately to support aggregate demand in the economy, which is a fancy way of saying they want Americans to spend more money. What I argue here is that Fed purchases of bitcoin could be an effective means to boost aggregate demand and have other benefits as well.