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The Democratic Party narrowly triumphed in the Georgia election held earlier this week, wresting control of the US Senate from Republicans. As such, the Democratic-controlled House of Representatives now has more freedom to implement its policies.
UBS Bank analysts believe the unified legislature will smooth the way to more fiscal stimulus. President-elect Joe Biden sees two-pronged stimulus effort in the form of $ 2,000 checks to Americans and a $ 3 trillion tax and infrastructure spending program, according to Axios report of dollars.
The new fiscal stimulus is expected to boost inflation, weaken the US dollar, and attract more buyers for creepy assets like bitcoin and gold.
Alex Melikhov, CEO and founder of Equilibrium and stablecoin EOSDT, told CoinDesk that the additional stimulus will inject more liquidity into the markets and likely fuel further increases in bitcoin prices.
The major cryptocurrency is already in a strong bull market, thanks to inflation stimulus measures adopted by the Federal Reserve and the US government over the past 10 months to counter the coronavirus-induced slowdown. These measures have prompted institutions to seek investments that offer hedges against inflation.
Bitcoin prices have climbed from $ 10,000 to record highs above $ 41,000 in the past four months, with publicly traded companies like Microstrategy buying Bitcoin to preserve the value of their cash reserves. This trend could accelerate, as predicted by JPMorgan, with additional fiscal stimulus from Biden and continued easing from the Federal Reserve.
“Biden’s stimulus may add an extra jolt to the price of bitcoin, but nothing more than pushing along a barrel freight train,” said Jehan Chu, managing partner of the crypto-based investment firm. Hong Kong Kenetic Capital, at CoinDesk.
The U.S. central bank is unlikely to relax or cut its $ 120 billion per month asset purchase program anytime soon and is committed to keeping interest rates at historically low levels for some time. time after inflation exceeds its 2% target.
Expected inflation
Market-based measures of inflation have started to take into account a potential increase in price pressures in the economy due to stimulus measures. The 10-year break-even point, which represents how the bond market forecasts long-term inflation, rose to 2.09% on Thursday, the highest level in more than two years, according to the Federal Reserve in St. Louis .
The break-even rate hit a low of nearly 0.5% in March 2020 and has been rising steadily since. Bitcoin has pretty much mimicked the rise in inflation expectations over the past 10 months.
The dollar index, which tracks the value of the greenback against major currencies, also extends its 2020 decline on expectations of further fiscal stimulus. The index fell to a 33-month low at 89.21 earlier this week, as gold, a traditional hedge against inflation, hit two-month highs near $ 1,960 an ounce.
Along with all this, bitcoin has gained more than 40% since the start of the year just eight days ago. The cryptocurrency set a new high of $ 41,026 at the start of the day.
“Traders are looking for dollar weakness that would correlate with a further rise in bitcoin,” Matthew Dibb, co-founder and COO of Stack Funds, told CoinDesk. “The declines, if any, are likely to be short-lived, with technical indicators suggesting few price signs near a bullish peak.”
“The crypto market is going to eat [Biden’s new stimulus] He said.
Also read: ‘Bitcoin Rich List’ Bounces To All-Time High
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