The kind of inflation that could bring out the power of bitcoin as a hedging asset won't come in the short term, according to some economists.
What the US inflation indicators say
“Right now, low interest rates tell us there is no evidence that we are borrowing too much money,” Stanford economist Erik Brynjolfsson said. “Separately, but in relation, inflation is also very low.
The US Federal Reserve (Fed) has set a target of around 2% for inflation, and has consistently stayed below this limit. We see no evidence that inflation is taking off ”.
Indeed, future economic growth could be in jeopardy if the US does not favor new fiscal stimulus, says former Treasury Secretary Lawrence Summers. He argues that the potential for inflation is not as worrisome as the potential for stalling economic growth.
Holders of bitcoin are watching closely for inflation indicators in the US. Those indicators predict a future rise in inflation, but "we're not seeing it yet," Brynjolfsson said.
"It is possible, indeed likely, that government policy will change direction in the next year and begin to bring interest rates back," said Brynjolfsson. Fed Chairman Jerome Powell, at an event at Princeton University last week, said, “If you look around the world, there is a shortage of demand in many large advanced economies ... that have faced this crisis with interest rates. of deeply negative interest rates and have had little political space with interest rates ”.
This will last until vaccines give the world back the freedom to spend freely. If everything goes in the right direction, the high inflation that bitcoiners are hoping for as confirmation of Bitcoin's "inflation hedge" thesis may not arise (find out buy Bitcoins).
What affects the price of bitcoin
"As the pandemic recedes and we see a potentially strong spending surge as people return to their normal lives and start using various services, we could see upward pressure on prices," Powell said.
“The real question is how big will that effect be and will it be persistent? Because clearly a one-off price increase that isn't very high is very unlikely to produce consistently high inflation. "
In the short term, bitcoin will still benefit from a low interest rate environment even if inflation will not skyrocket. The less money investors can make on bond yields, the more money they could invest in potentially more profitable assets like bitcoin, Summers said.
“It's a pretty simple subject,” Summers said. "When the amount you can earn on bonds goes down, people invest less money in bonds and more money in other assets, and that increases the value of those assets."
Brynjolfsson added: “Demand for assets like gold and bitcoin has significantly outstripped supply, driving prices up. Specifically, in this case, the markets say they would like the government to borrow more, that there are not enough secure resources for what people want to do. "
