In the special election to the Georgia state Senate earlier this week, the Democratic Party narrowly triumphed and wrested control of the US Senate from the Republicans. As such, the democratically controlled House of Representatives now has more freedom in implementing its economic policies.
UBS Bank analysts believe that uniform government legislation will pave the way for more fiscal incentives. President-elect Joe Biden is considering a two-pronged economic stimulus of $ 2,000 checks for Americans and a $ 3 trillion tax and infrastructure spending package, according to an Axios report.
The new fiscal stimulus is expected to boost inflation, weaken the US dollar, and attract more buyers for terrifying assets like bitcoin and gold.
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Alex Melikhov, CEO and founder of Equilibrium and the EOSDT Stablecoin, told CoinDesk that the additional stimulus would bring more liquidity to the markets and likely spur further Bitcoin price hikes.
The leading cryptocurrency is already in a strong bull market thanks to the inflationary measures the Federal Reserve and the US government have put in place over the past 10 months to counter the slowdown caused by the coronavirus. These measures have led institutions to look for investments that offer a hedge against inflation.
Bitcoin prices have soared from $ 10,000 to record highs of over $ 41,000 in the past four months, with public companies like MicroStrategy buying bitcoin to preserve the value of their treasury reserves. This trend, as forecast by JPMorgan, could gain momentum with the additional fiscal stimulus from Biden and the further easing of the Federal Reserve.
“The Biden stimulus could give the price of Bitcoin an additional boost, but nothing more than push a rolling freight train,” Jehan Chu, managing partner of Hong Kong-based crypto investment firm Kenetic Capital, told CoinDesk.
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The story goes on
The Federal Reserve is unlikely to end its $ 120 billion asset purchase program.
Inflation expected
Market-based measures of inflation have begun to account for a potential stimulus-driven increase in price pressures in the economy. The 10-year breakeven rate, which is the bond market’s long-term forecast of inflation, rose to 2.09% Thursday, its highest level in over two years, according to the St. Louis Federal Reserve.
The break-even rate bottomed at 0.5% in March 2020 and has risen since then. Bitcoin has pretty much mimicked the rise in inflation expectations over the past 10 months.
The dollar index, which tracks the value of the greenback against major currencies, is also prolonging its decline in 2020 due to expectations for additional fiscal stimulus. The index fell to a 33-month low of 89.21 earlier this week, while gold, a traditional inflation hedge, rose to a two-month high near $ 1,960 an ounce.
In addition, Bitcoin has gained over 40% since the beginning of the year just eight days ago. The cryptocurrency hit another new record high today at $ 41,026.
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“Traders are looking for dollar weakness that would correlate with another uptrend in Bitcoin,” Matthew Dibb, co-founder and COO of Stack Funds, told CoinDesk. “Drops, if any, are likely to be short-lived, with technical indicators showing little indication that prices are nearing a bull market high.”
“The crypto market will eat [Biden’s new stimulus] up, ”he said.
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