High Inflation and Fiscal Deficits to Boost Bitcoin Demand, Predicts Grayscale's Zach Pandl
Summary:
Grayscale's Director of Research, Zach Pandl, predicts that Bitcoin and similar assets will remain in high demand due to ongoing inflation and escalating budget deficits caused by US government overspending and high-interest-rate policies. With the Federal Reserve unlikely to cut interest rates amid high inflation, upcoming events like Bitcoin's halving, rising economic growth, and increasing crypto adoption are expected to boost Bitcoin's value. This analysis comes as the 10-year real interest rate rises, possibly pushing investors towards less volatile assets. Notably, Bitcoin has previously suffered significant price drops during substantial monthly spikes in the 10-year real interest rate.
Assets like Bitcoin (BTC) that serve as safe havens could become increasingly sought-after due to the US government's continuous overspending and high-interest-rate policies, says Zach Pandl, Grayscale's Director of Research. Speaking to Cointelegraph, Pandl predicted that factors such as ongoing inflation and mounting budget deficits will sustain demand for Bitcoin and similar assets. With inflation currently high, it's doubtful that the Federal Reserve will be able to decrease interest rates soon. However, future events like Bitcoin's upcoming halving expected on April 20th, an accelerating economy, and increased acceptance of cryptocurrency should support Bitcoin's value. March's inflation increased 0.4% month on month and 3.5% year on year, outdoing the 0.3% monthly rise and 3.4% annual increase forecasted by a Dow Jones economists survey. This turn of events led to disappointment, aligning with Pandl's worry that high inflation levels will prevent the Federal Reserve from lowering interest rates in the foreseeable future. In a conversation with Yahoo Finance, EY's chief economist Greg Daco pointed out that higher inflation intensifies the strain on policymakers to maintain an elevated monetary policy outlook. Despite these developments, Pandl maintains that while a real interest rate rise could hinder cryptocurrency value in the short term, demand for store-of-value assets will remain consistent over a longer time frame. As the 10-year real interest rate witnessed a monthly 19% increase to 1.934 from February's 1.616, investors could opt for less volatile assets like bonds and term deposits. Bitcoin has previously seen notable price falls during significant monthly spikes in the 10-year real interest rate. The 10-year real interest rate rose by over half from December 2017 through January 2018, ascending from 0.573 to 0.873 as per data from the Federal Reserve Bank of St. Louis. Bitcoin's value simultaneously plummeted, dropping from approximately $12,839 at December 2017's close to $9,240 at the close of the following month, marking a 28% decrease. After the most recent Consumer Price Index (CPI) information was revealed, Bitcoin experienced a small dip in price, reflecting parallel investor sentiment. Cointelegraph Markets Pro and TradingView reported Bitcoin prices had decreased by as much as 2.5% on April 10, reaching a daily low of $67,463 on Coinbase. As of publishing time, Bitcoin is priced at $70,640 according to CoinMarketCap. On April 11, crypto analyst Matthew Hyland pointed out on X that an ascending triangle has formed on the Bitcoin price chart. He noted that Bitcoin had achieved a new resistance level over $71,500, with a peak of $72,329 on April 8.
Published At
4/11/2024 6:06:42 AM
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