Persistent Inflation and High Interest Rates Set to Push Bitcoin Demand, Says Grayscale Research Director
Summary:
The U.S. government's sustained high interest rates and excessive spending will maintain the appeal of store-of-value assets such as Bitcoin (BTC), according to Grayscale Research Director Zach Pandl. He expects enduring inflation and budget deficits to boost demand for Bitcoin. Despite the possibility of a short-term negative effect due to a rise in real interest rates, Pandl states the long-term demand for value-securing assets will persist. This comes amidst March's higher-than-expected inflation rates, further intensifying ongoing debates regarding the Federal Reserve's future actions.
With the United States government maintaining high interest rates and over-expenditure, value-preserving assets, including Bitcoin (BTC), are likely to remain the top choice for investors, says Zach Pandl, Managing Director of Research at Grayscale. He informed Cointelegraph that enduring inflation and untenable budget deficits are expected to promote ongoing demand for such assets. Pandl believes that considering the prevailing inflation, it's doubtful that the Federal Reserve would bring down the interest rates anytime soon. Nevertheless, future happenings like Bitcoin halving set for April 20, a surge in economic growth and increased crypto adoption are likely to boost Bitcoin's value. According to the research director, the core inflation being sky-high, the Federal Reserve is not expected to trim rates soon. Still, nominal growth boom, Bitcoin halving, and trends like tokenization point towards a conducive atmosphere for the crypto markets.
March's inflation escalated by 0.4% month-over-month and 3.5% year-over-year, compared to anticipations of a 0.3% monthly and 3.4% annual increase from a Dow Jones economist survey. This outcome has left many disillusioned and echoing Pandl's worries of sustained high inflation rates preventing the Federal Reserve from slashing interest rates in the near future. Greg Daco, the chief economist at Ernst & Young, told Yahoo Finance that the surging inflation rates exert extra pressure on "policymakers to uphold a higher-for-longer monetary policy.view."
Contrarily, Pandl stated that while a hike in the real interest rate may be a "short-term downside for crypto," demand for value-retaining assets is likely to continue over the long term. From a broader viewpoint, the 10-year actual interest rate surged 19% from the previous month to 1.934, up from the 1.616 of February. Such an increase might become an influential factor for investors to lean towards more stable assets like bonds or term deposits. Historically, there have been numerous occurrences when a massive monthly jump in the 10-year real interest rate led to a significant fall in Bitcoin's price.
This interest rate rocketed by 52.35% from December 2017 to January 2018, escalating from 0.573 to 0.873, as per data from the Federal Reserve Bank of St. Louis. Concurrently, Bitcoin's price plummeted during this phase, from around $12,839 at the end of December 2017 to $9,240 by the end of January 2018, marking a 28% slump. Recent CPI information led to Bitcoin experiencing a slight dip in its price, reflecting similar investor sentiment.
According to data compiled by Cointelegraph Markets Pro and TradingView, BTC’s price plunged as much as 2.5% on April 10 to reach an intra-day low of $67,463 on Coinbase. CoinMarketCap data reveals Bitcoin’s price to be $70,640 at the time of publishing.
Crypto analyst Matthew Hyland pointed out in an April 11th post that Bitcoin is forming an ascending triangle on its price chart, mentioning that Bitcoin has set a new resistance level above $71,500, hitting $72,329 on April 8.
Published At
4/11/2024 2:46:04 PM
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