During mid-March, many Americans received checks from the government, and while the payment – $ 1,400 for every US citizen earning less than $ 80,000 a year – would be a boon to millions of people in severe economic hardship as a result of COVID-19. the crisis. This raised the specter of inflation again. As with many other things, this also applies to Bitcoin (BTC).
On March 15, Galaxy Digital CEO Mike Novogratz of NBC’s Squawk Box proposed a new role for Bitcoin in light of recent stimulus measures – as a “standard card for how citizens believe the government is running the economy.” If people think US Treasury Secretary Janet Yellen is A. acne. It could safely land this “mega-supertanker” which is a financial and monetary stimulus, Novogratz said, until “people stop switching to Bitcoin.” But at the moment, “We are in unknown regions as far as the amount of money we print, and Bitcoin is the report card.”
Podcast Preston Pysh called for something similar a few days ago in response to the news that the US House of Representatives had passed a $ 1.9 trillion relief package from COVID: “Think of #Bitcoin as a measure of tampering.”
What can you do about this? An exciting new use case for the world’s first cryptocurrency – for example, as a feedback tool for monetary policymakers? Or just another fancy of Bitcoin extremists?
There is “no evidence” that Bitcoin is a hedging tool
David Ermack, a professor of finance at New York University’s Leonard in Stern School of Business, rejected the idea that BTC could serve as a “report card” for governments, telling Cointelegraph: “Currency.” He added that “when looking at large samples for research purposes, it was difficult. Too much to find a clue in the strictest statistical sense. ”
Others say Bitcoin is a very imprecise target. If inflation rises 2.4% over the year, as the Federal Reserve recently predicted, will BTC rise 2.4% as well – or some steady multiplier for that value? Or, on the contrary, if the Fed tightens the money supply and cuts inflation, will the price of BTC fall? Basically, BTC has to be closely related to inflation to be useful as a comment tool, which seems unlikely.
“The Fed’s increased liquidity has boosted nearly all major asset classes, with some purely speculative games like Bitcoin bringing even greater benefits,” said Eswar Prasad, professor of economics at Cornell University and a senior fellow at the Brookings Institution. Cointelegraph adds:
“Bitcoin prices are unlikely to be seen as a reliable benchmark for any kind of monetary policy, especially as they trade in a relatively weak market that appears to be vulnerable to manipulation and speculative waves.”
However, Novogratz received some support for his hypothesis – at least on Twitter. On February 28th, he took an informal survey and asked, “Is $ BTC a report card for monetary and fiscal policy?” When more than 3000 votes were collected, 70.8% answered “yes” and 29.2% answered “no”.
Nick Battia, author of Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currency and Associate Professor of Finance and Business Economics at the University of Southern California, told Cointelegraph that financial incentives should be separated from monetary incentives.
According to him, in the short term there is clearly a positive correlation between the fiscal stimulus and the bitcoin price. When people have new incentive checks in their pockets, they are more likely to buy bitcoins, which will drive up the bitcoin price. In fact, a recent survey by Mizuho Securities found that stimulus measures in the US could boost Bitcoin’s market value by as much as 3% – even though this poll was a small sample size.
Either way, the link between monetary stimulus and BTC is hard to show, Bhatia continued. In the long run, most bitcoin holders would probably believe that there is a positive correlation between monetary stimulus and BTC – that is, people who fear stimulus-driven inflation will seek refuge in BTC but this cannot be proven. According to Bhatia, the reason BTC’s price is now soaring – and will continue to grow – is “the growing dominance of the cryptocurrency in the international monetary system,” Cointelegraph told.
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While some argue that Bitcoin may not have a near future in this use case – as a monetary policy measure – it still has other use cases associated with it, including “ fear.