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According to Jeff Kendrick of Standard Chartered, rising debt and deficits are likely to take an unsustainable course, raising the risk of fiscal dominance in the U.S. This should be good news for them.Donald Trump wins the presidential election It would also be a boon for digital assets, he added.
Fiscal dominance is an economic condition that occurs when government fiscal measures overshadow monetary policy independence. As a result, central banks will be forced to respond to government spending, which could undermine their ability to control inflation.
Such a scenario could have several implications for the Treasury yield curve.
- The yield spread between 2-year (US2Y) and 10-year (US10Y) notes widens, widening the yield gap.
- A larger increase in the inflation breakeven point (a market-based measure of expected inflation derived from the spread between the yield on a nominal bond and the yield on an inflation-protected bond of the same maturity) than the inflation-adjusted yield.and
- Higher term premium, additional return investors require to hold long-term bonds rather than short-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.
He further added, “In a scenario of US fiscal dominance, we believe BTC would be a good hedge against de-dollarization and declining confidence in the UST market.”
JPMorgan Chase (JPM) CEO Jamie Dimon, a longtime critic of Bitcoin (BTC-USD), appears to agree with Kendrick's assessment of its financial advantages. In a statement last month, he said the U.S. economy is “in good shape,” largely due to massive government spending. The trade-off with a debt-fueled economy is inflation, he added.
In addition to the prospect of the US dollar losing its dominance as the world reserve currency, Bitcoin (BTC-USD ) typically perform well compared to traditional financial assets. notes the StanChart notes. However, rising geopolitical risks do not bode well for the token.
Many also claim that Bitcoin (BTC-USD) is a good hedge against inflation. While the token's overall upward trend may support that general notion, there have been no instances in recent memory where prices actually fell or barely reacted despite high inflation rates. There were quite a few.
Kendrick argued that President Trump's victory should also be positive for Bitcoin (BTC-USD) through “deregulation and approval of US spot ETFs.”
The Biden administration is taking a tougher approach to cryptocurrencies, but President Trump won't crack down on the use of Bitcoin (BTC-USD) or other digital tokens if re-elected president. said.
Overall, Kendrick reiterated his Bitcoin (BTC-USD) target price of $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) was trading at $613,000, down 13% month-over-month, up 45% year-to-date, and up 122% year-over-year. BTC reached an all-time high of more than $73,000 in March, but has since fallen back as market participants pushed expectations for interest rate cuts amid grim inflation statistics.
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