Another Demand Source for BTC In a World of Central Banks’ “Whatever it Takes” Stance
Bitcoin is up about 21% against USD YTD but a whopping 74% against Brazilian Real, 60% in South African Rand, 52% in Mexican Peso, 45% against Turkish Lira, and more than 44% in both Russian Ruble and Colombian Peso.
This is the result of the unprecedented size and speed of monetary and fiscal responses to COVID-19. This relief has already surpassed $10 trillion globally.
The US Federal Reserve added over $2.5 trillion to this in the last two months. The demand for dollar and dollar-based assets gives them far more breathing room than any other central bank in its size of intervention.
Interest rates globally have also been slashed in a desperate attempt to slow the rapid tightening of financial situations.
But the declining value of fiat currencies during this period points out how this “do whatever it takes” mantra — with aggressive rate cuts and massive asset purchases — can only go so far.
Interestingly, Bitcoin cycles tend to peak when the growth of assets of major central banks began to decelerate.
Demand for non-sovereign “safe haven” assets & non-correlated alternatives
Some developing countries have the room to cut rates in case the economic condition worsens. These countries can benefit from mild currency depreciation but at the same time risk driving away foreign investors.
Just last week, Brazil cut down its benchmark interest rates to a record low of 3% and its Congress has given the green light to new asset purchases. Brazilian Real has already lost 30% of its value against the US dollar since the start of this year. As such, BTC is up 74% against it.
Although, the capital flowing out of emerging markets won’t flow right into bitcoin, “the sheer size of this potential move could serve as another demand source for BTC, especially if tighter capital controls become more commonplace,” stated Delphi Digital in its latest report.
In this environment, Delphi Digital expects the demand for non-sovereign “safe haven” assets to rise considerably amidst the increasing risk of broad-based currency debasement, “most notably bitcoin and gold.”
Moreover, a rise in demand for non-correlated alternatives is foreseen by the independent crypto research company as “investors become more aware of the secular headwinds facing growth assets.”
Amidst this macro backdrop, bitcoin had its third halving yesterday. This supply shock has the inflation rate of the world’s leading digital asset declining to 1.80%, less than the global inflation rate of 3.6% while being the best performing asset of the past decade and of 2020 so far. All of this is what makes this digital asset an attractive investment option.
Macro investor Paul Tudor Jones also revealed this week that he has almost 2% of his assets in Bitcoin which he considers a hedge against inflation.