Simon Peters: BTC Has a Bright Future if Inflation Exists
Not too long ago, Federal Reserve chair Jerome Powell announced that the United States was going to permit inflation beyond the $2 mark. Traditionally, $2 is the maximum that inflation is usually allowed to go in this country, but given the special circumstances that the nation – and the world – is facing with the coronavirus and what not, inflation is being given some leeway and things are allowed to move a little higher than they normally do.
Is this a bad thing or a good thing? It didn’t really matter considering how much people panicked. This negative sentiment is what sent bitcoin into a downward spiral. At the time, the world’s number one cryptocurrency by market cap had been trading in the mid-$11,000 range, but after the news had been announced, the currency fell by several hundred dollars and was trading in the low $11,200 range, the lowest it had been in over a month.
However, now the asset appears to be picking up again, and is trading for more than $11,600. Could this be a coincidence? Not necessarily. See, bitcoin typically tends to do well when the U.S. dollar or fiat in general isn’t doing so hot, and granted the U.S. dollar has been weakened by the present economic circumstances we’ve been facing as of late, it makes sense that bitcoin would be doing better than usual.
Thus, it’s plausible to assume that the recent drop it incurred was something of a fluke – a temporary fall due to the fear that everyone was experiencing over Powell’s words.
Things Will Spike from Here
In the long run, Peters believes this is going to have a positive effect on the world’s leading cryptocurrency. In a recent interview, he comments:
The Federal Reserve has announced a significant policy change, as it now looks to target average inflation. Usually, the Fed targets a two percent inflation rate, but under this new change it would allow a period of stagnant inflation to be followed by a period of above-target inflation to achieve the two percent average before potentially hiking rates. Raising interest rates is usually the brake that the Fed applies to prevent inflation running rampant. However, under this new approach, Jerome Powell and the FOMC will be less inclined to act, even if inflation goes over two percent… Bitcoin is increasingly being viewed as a hedge against inflation, and I would expect this policy change from Powell to encourage more bitcoin acquisition from investors, both retail and institutional. We may even see more corporations holding bitcoin in reserve on their balance sheets.