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There is a growing risk of financial dominance in the US, with rising debt and deficits likely to be on an unsustainable path, and that should be good news for Bitcoin (BTC-USD), according to Jeff Kendrick of Standard Chartered Bank. Donald Trump wins the presidential election He added that this would be a boon for digital assets as well.
Fiscal dominance is an economic condition that occurs when fiscal actions taken by governments override the independence of monetary policy. This, in turn, could undermine central banks' ability to control inflation because they would have to absorb government spending.
Such a scenario would likely have several implications for the Treasury yield curve:
- The yield spread between the two-year bill (US2Y) and the 10-year note (US10Y) is widening, in a move that worsens the yield gap;
- A greater increase in inflation-adjusted (a market-based measure of expected inflation derived from the spread between the nominal bond yield and inflation-linked bonds of the same maturity) compared to inflation-adjusted yields; And
- Higher term premium, which is the additional return investors require for holding longer-term bonds rather than shorter-term bonds.
The price of Bitcoin (BTC-USD) has a strong relationship with each of these three influences, Kenrick wrote in a recent note to clients.
“In a US financial dominance scenario, we believe Bitcoin will provide a good hedge against a falling dollar and declining confidence in the UST market,” he added.
JPMorgan Chase (JPM) CEO Jamie Dimon, a longtime critic of Bitcoin (BTC-USD), appears to agree with Kendrick's assessment of financial dominance. The US economy is “booming,” he said in a friendly conversation last month, but that is largely due to massive government spending. The trade-off with a debt-fueled economy is inflation, he added.
In addition to the US dollar potentially losing its dominance as the global reserve currency, Bitcoin (BTC-USD) typically performs well compared to traditional financial assets when the banking system is under stress, or when central banks monetize government debt through quantitative easing. Standard Chartered note noted. However, rising geopolitical risks do not bode well for the token.
Also, many people see Bitcoin (BTC-USD) as a good hedge against inflation. The token's overall uptrend may support this popular notion, but there have been a few instances in recent memory where the price actually fell, or barely reacted, after a hot inflation reading.
Kendrick emphasized that Trump's election victory should also be positive for Bitcoin (BTC-USD), through “more flexible regulation and approval of US spot ETFs.”
While the Biden administration has adopted a tougher approach to cryptocurrencies, Trump said he would not crack down on the use of Bitcoin (BTC-USD) or other digital tokens if he is elected president again.
Finally, 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 believes BTC is a Buy (1 Strong Buy, 9 Buy, 3) Hold, 1 Sell ).
In Saturday afternoon trading, Bitcoin (BTC-USD) was trading at $61.3K, down 13% month-over-month, up 45% year-to-date and 122% from last year. BTC reached an all-time high of over $73,000 in March, but has since retreated as market participants pushed back their expectations for interest rate cuts in the face of flat inflation data.
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