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There is a growing risk of fiscal dominance in the US, with growing debts and deficits likely on an unsustainable path, and that should be good news for bitcoin (btc-USD), according to Standard Chartered's Geoff Kendrick. Donald Trump winning the presidential election It would also be a boon for digital assets, he added.
Fiscal dominance is an economic condition that occurs when the fiscal actions of governments overshadow the independence of monetary policy. This, in turn, potentially undermines central banks' ability to control inflation as they would be forced to accommodate public spending.
Such a scenario would likely have several implications for the Treasury yield curve:
- The yield differential between the 2-year bond (US2Y) and the 10-year bond (US10Y) widens, in a move that deepens the yield gap;
- A greater increase in inflation breakevens (a market measure of expected inflation derived from the spread between the yield on a nominal bond and an inflation-linked bond of the same maturity) than inflation-adjusted yields; and
- A higher term premium, the additional yield that investors require to hold 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 US fiscal dominance scenario, 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 bitcoin (btc-USD) critic, appears to agree with Kendrick's fiscal dominance assessment. In a fireside chat last month, he said the U.S. economy is “booming,” but that is largely due to huge government spending. The counterpart to a debt-driven economy is inflation, he added.
Aside from the prospect of the US dollar losing its dominance as the global reserve currency, bitcoin (btc-USD) generally fares well relative to traditional financial assets when the banking system is under stress or when central banks monetize liquidity. public debt through quantitative easing. , noted the StanChart note. However, the increased geopolitical risk does not bode well for the token.
Additionally, many people argue that bitcoin (btc-USD) is a good hedge against inflation. The token's overall bullish trend may support that popular notion, but there have been quite a few cases of late where the price actually fell, or barely reacted, after a high inflation reading.
A Trump election victory should also be positive for bitcoin (btc-USD), Kendrick maintained, through “more flexible regulation and the approval of US spot ETFs.”
While the Biden administration has taken a tougher approach toward cryptocurrencies, Trump has said he will not crack down on the use of bitcoin (btc-USD) or other digital tokens if he is elected president again.
In total, Kendrick reiterated his price targets for bitcoin (btc-USD): $150,000 by the end of 2024 and $200,000 by the end of 2025. The average SA analyst thinks btc is a buy (1 strong buy, 9 buy, 3 Hold, 1 Sell).
In Saturday afternoon trading, bitcoin (btc-USD) changed hands at $61.3K, down 13% from the previous month, up 45% year-to-date, and up 122% from last month. one year. btc had hit an all-time high of over $73,000 in March, but has since retreated as market participants raised their rate cut expectations amid challenging inflation data.
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