The Democratic Party narrowly triumphed in a special Senate election in the state of Georgia earlier this week, wresting control of the US Senate from the Republicans.
As such, the Democrat-controlled House of Representatives now has more freedom to implement its economic policies. According to an Axios report, President-elect Joe Biden is considering a fiscal stimulus plan in the form of $ 2.000 checks for Americans and a $ 3 trillion package of tax and infrastructure spending. The new plan is expected to raise inflation, weaken the US dollar and attract more buyers to assets like bitcoin (quotation BTC) and gold.
US Strategies Affect Bitcoin Prices
The major cryptocurrency is already in a strong bullish trend thanks to the measures taken by the Federal Reserve and the US government over the past 10 months to counter the slowdown induced by the coronavirus, which have increased inflation.
This prompted institutions to look for investments that offered a hedge against inflation. Bitcoin prices have risen from $ 10.000 to record highs above $ 41.000 in the past four months, with publicly traded companies like MicroStrategy buying bitcoins to preserve the value of their cash reserves. This trend could grow, as JPMorgan predicted, thanks to the upcoming fiscal stimulus from the Biden government.
An increase in inflation favorable to Bitcoin
Market-based measures of inflation have begun to take into account a potential increase in price pressures in the economy driven by fiscal stimulus. The 10-year break-even rate, which represents how the bond market predicts long-term inflation, rose to 2,09% on Thursday, its highest level in over two years, according to the St. Louis Federal Reserve. .
That metric hit a low near 0,5% in March 2020 and has been on the rise ever since. Bitcoin has pretty much followed the rise in inflation expectations over the past 10 months. The dollar index, which represents the value of the dollar against major currencies, is continuing the descent that began in 2020 based on expectations of further fiscal stimulus.
The index fell to a 33-month low of 89,21 earlier this week, while gold, a traditional hedge against inflation, rose to a two-month high of around $ 1.960 an ounce.
On top of all this, bitcoin has gained over 40% since the beginning of the year which happened just 8 days ago. The cryptocurrency set another new high of around $ 41.500 on Friday. "Traders are looking at dollar weakness that would be correlated with a further rise in bitcoin," said Matthew Dibb, co-founder and COO of Stack Funds.
"The declines, if any, are likely to be short-lived, with technical indicators suggesting small signs of prices approaching a bull market peak." "The cryptocurrency market will devour Biden's new stimulus," he said.
