Bitcoin
Bitcoin stands to gain from US fiscal dominance, Trump victory: StanChart
da-kuk/E+ via Getty Images
There is a growing risk of fiscal dominance in the US, with ever-increasing debt and deficits likely on an unsustainable path, and that should be good news for bitcoin (BTC-USD), according to Geoff Kendrick of Standard Chartered. Donald Trump’s victory in the presidential election would also be a boon for digital assets, he added.
Fiscal dominance is an economic condition that occurs when governments’ fiscal actions overshadow the independence of monetary policy. This, in turn, potentially harms the ability of central banks to control inflation, as they would be forced to accommodate government spending.
Such a scenario would likely have several implications for the Treasury yield curve:
- The yield spread between the 2 years (USA2A) account and the 10-year invoice (US10A) the grade increases, in a movement that accentuates the difference in performance;
- A greater increase in inflation break-even points (a market-based measure of expected inflation derived from the spread between the yield on a nominal bond and an inflation-indexed bond with the same maturity) than inflation-adjusted yields; It is
- A higher-term premium, the extra return that investors require for holding longer-term bonds rather than shorter-term bonds.
The price of bitcoin (BTC-USD) has a strong relationship with each of these three effects, Kenrick wrote in a recent note to clients.
“In a scenario of US fiscal dominance, we believe BTC would provide a good hedge against de-dollarization and declining confidence in the UST market,” he added.
JPMorgan Chase (JPM) CEO Jamie Dimon, a longtime bitcoiner (BTC-USD), critic, appears to agree with Kendrick’s assessment of fiscal dominance. He said in a chat last month that the The US economy is “booming” but this is largely driven by outsized government spending. The tradeoff with a debt-fueled economy is inflation, he added.
In addition to the prospect of the US dollar losing its dominance as a global reserve currency, bitcoin (BTC-USD) typically performs well relative to traditional financial assets when the banking system is under pressure, or when central banks monetize public debt through quantitative easing, the StanChart note noted. Increasing geopolitical risk, however, does not bode well for the token.
Furthermore, many people argue that bitcoin (BTC-USD) is a good hedge against inflation. The token’s overall bullish trend may support this popular notion, but there have been some recent cases where the price actually fell, or barely reacted, following a hot inflation reading.
A Trump election victory should also be positive for bitcoin (BTC-USD), Kendrick argued, through “more flexible regulation and approval of U.S. spot ETFs.”
While the Biden administration has taken a more stringent approach to encryption, Trump has said that he wouldn’t repress about the use of bitcoin (BTC-USD) or other digital tokens if elected president again.
In all, Kendrick reiterated his price targets for bitcoin (BTC-USD): US$ 150 thousand by the end of 2024 and US$ 200 thousand by the end of 2025. average SA analyst thinks BTC is a buy (1 strong buy, 9 buys, 3 holds, 1 sell).
In Saturday afternoon trading, bitcoin (BTC-USD) changed hands for US$61.3 thousand, down 13% M/M, an increase of 45% year-to-date and 122% compared to the previous year. BTC reached an all-time high of more than $73,000 in March but has since retreated as market participants lowered their rate cut expectations in the face of tough inflation data.
Dear readers: We recognize that politics often intersects with the financial news of the day, so we invite you to Click here to join the separate political discussion.