Record government stimulus has been good for stocks — could it help Bitcoin too?
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The stock market’s response to record amounts of fiscal and monetary stimulus has created the biggest talking point for investors heading into the second half of the year.
Valuations are based on future earnings, so the rebound in prices suggests that markets are looking beyond a short term coronavirus-related profit slump in the June quarter.
After that, valuations imply earnings will benefit from a combination of record-low interest rates and increased government spending as economic activity returns.
But across asset classes, financial advisory firm deVere Group reckons Bitcoin will be a key beneficiary of all that “helicopter money”.
deVere CEO Nigel Green, a noted cryptocurrency advocate, says the fallout from the policy response to the COVID-19 coronavirus will benefit assets that can demonstrate their worth as a store of value (such as gold).
Citing Bitcoin’s relative scarcity (and finite supply), Green said the currency is “living up to its reputation as ‘digital gold'”.
And in the context of much looser financial conditions in the wake of the crisis, Green said those attributes could serve to heighten Bitcoin’s value proposition if it leads to a pickup in inflation.
Although analysts such as Green view it as an inflation hedge, one unique aspect of BTC’s price action is that it’s also shown a strong correlation with US stocks.
However, Green said the prospect of higher inflation is a “legitimate concern”, and argued the BTC will be well-supported as more investors look to hedge against the risk of rising prices.
“Governments are promising literally boundless stimulus. This money has to go somewhere, so will prices rise? Many experts are expressing fears about a longer-term inflationary boom,” Green said.
Among them was US hedge fund manager Paul Tudor Jones, he said he’d allocated a small percentage of his fund to Bitcoin. Jones said that while Bitcoin is only 12 years old (compared to gold’s multi-millennia proposition), each day that it remains operational strengthens its case as a store of value.
“To hedge against inflation risks, it is likely that more and more investors will increase their exposure to Bitcoin and other digital currencies, driving up prices,” Green said.
Green also said that support for Bitcoin, the world’s largest cryptocurrency, may have positive flow-on effects for other crypto assets.
Bitcoin prices stayed resilient following a wild weekend of protests in the US, trading above $US9,500 (~$14,100) on Monday after climbing almost 10 per cent in the week prior.