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Is an Open-Ended Stimulus an Ad for Bitcoin?

The US Federal Reserve has plans to curb coronavirus stimulus packages, as it was announced yesterday. The stimulus packages, feared to drop the US dollar’s value, can make a strong case for Bitcoin, analysts say.

The Fed announced recently that it will continue to buy at least $80B in government debt every month and will keep interest rates near zero until the unemployment’s down and inflation averages 2% again.

The Fed assumes that it can take years until it happens, according to projections showed yesterday.

The US central bank displayed that both unemployment and inflation will not reach pre-pandemic levels until 2023, suggesting that it expects the money-printing to continue for the next few years.

The Fed is doing its best to keep the US economy in control and stop the humble US dollar devaluation, which the Fed proudly calls the reserve currency of the world. But it might not be enough.

Bitcoin, a decentralized currency that is operating without a central bank, probes at these insecurities.

“A weaker US dollar, coupled with a risk-on appetite, usually spells trouble in the FX markets, as it tends to lead to yield hunting and flows into emerging markets. This usually spells trouble to local central banks because it leads to higher inflation.”

Denis Vinokourov, head of research at digital assets prime broker Bequant,

Ah, but this is good for Bitcoin, said Vinokourov, which is “a hedge against all things unexpected, as well as inflation.” He said that people from emerging markets, whose central banks have ruined their currencies, are more likely to switch to Bitcoin.

The CEO and CIO of Dalpha Capital, Matthew Edwards, said that although the Bitcoin-as-a-store-of-value-and-hedge-against-inflation argument has already attracted billionaire investors like Paul Tudor Jones, “that remains purely theoretical at this point since inflation remains stagnant and BTC has yet to be tested in an inflationary environment.”

More importantly, Edwards says that it is low in interest rates, and also as declines in yields from more traditional investments, can increase investors’ risk appetite. And Bitcoin is the riskiest of all cryptocurrencies.

Guy Hirsch, the manager of eToro US, says that it “is likely to spur retail interest in Bitcoin and other digital assets.” The Fed’s low saving rate tickled down to US savings accounts, where the traditional banks pay insignificant sums of money to HODLers of US dollars.

“People are starting to realize the value of their money is dwindling because they aren’t earning yield on it,” he said, “and are starting to look elsewhere to preserve both their spending power and wealth. The massive upside offered by Bitcoin, plus the opportunity to earn a yield on it, is extremely attractive to several people and will continue to be for the foreseeable future.”

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