Extremely bullish for BTC: 3 bold US dollar predictions highlight Bitcoin’s potential
The US dollar is expected to continue its downward trend into 2021 as Democrats gain control of Congress.
Meanwhile, Bitcoin, a Bitcoin Lifestyle cryptocurrency that trades inversely to the greenback, has hit new record highs above $40,000 – more than double its December 2017 peak.
Many observers agree that the dollar would do well in 2021, given its supposed ability to cope with inflation caused by the US government’s expansionary fiscal stimulus for people.
„It makes some sense to me,“ former Fed governor Kevin Warsh tells CNBC of Bitcoin’s bull run. „The dollar is weakening, and after the election overnight, I would expect the dollar to continue to weaken against a large basket of currencies.“
The narrative is as follows: Bitcoin comes with a predefined supply cap of 21 million, with supply reducing by half after four years. Meanwhile, the US dollar has no defined supply cap.
The Federal Reserve can print it indefinitely, effectively reducing its purchasing power in the long run. Assets like Bitcoin tend to protect investors from fiat devaluation.
The great Bitcoin boom
In 2020, Bitcoin’s anti-dollar narrative picked up steam in institutional circles.
As the US government increased spending to help people through the coronavirus pandemic and the Fed cut its benchmark interest rate to near zero, the dollar plummeted more than 12 per cent from its high for the year. That prompted investors to buy Bitcoin (get in too? Go to Buy Bitcoins with Instant Bank Transfer Guide) to move their cash reserves, which ended the year up nearly 300 per cent.
Bitcoin performance since its mid-March low. Source: BTCUSD on TradingView.com.
The year 2021 offers similar prospects for both the dollar and bitcoin. Mr. Biden’s victory this week has mainstream analysts turning more bearish on the greenback.
The president-elect hopes to increase the $900 billion stimulus package, fuelling expectations of further inflation.
A clean blue sweep in Congress is „clearly negative for the dollar and reinforces our view of further depreciation in 2021,“ Derek Halpenny, head of research for Emea Global Markets at MUFG Bank, tells the FT, adding that they now expect the greenback to fall more than previously estimated.
In the meantime, the Fed plans to keep interest rates near zero for the next few years – or until they push inflation above 2 per cent. That includes its commitment to buy $120 billion worth of government and corporate bonds every month. That means more pressure on the US dollar.
The bearish bias is also likely to intensify as foreign currencies outperform amid a global economic recovery. At Goldman Sachs, analysts say investor demand for non-US assets would devalue the dollar by at least 5 per cent from its current level.
„The dollar remains near its cycle high with ample room for a multi-year downtrend,“ comments Gurpreet Gill, a strategist at Goldman Sachs Asset Management.
All in all, Bitcoin could benefit from the dollar’s downtrend – as it has done since March.
Institutional investors such as Paul Tudor Jones, Scott Minerd and Stan Druckenmiller have already allocated a portion of their multibillion-dollar portfolios to the cryptocurrency. Meanwhile, companies like MicroStrategy, MassMutual, Ruffer Investments and Square have bought bitcoin to hedge risk.