2020 was the year Bitcoin (BTC) and the broader crypto market reacted more actively to macroeconomic trends and indicators. While critics keep going fight Since this market only reacts to its own problems and moves, it looks like an investment in Bitcoin MicroStrategy, squareand even like SMEs Snap and Tahinis was in response to low interest rates and a troubled dollar.
USD / EUR rate
This is expected to continue until 2021. A number of industry metrics and analysts tell Cryptonews.com that they expect low interest rates and quantitative easing (QE) to remain a staple of the macroeconomic landscape for some time. While some believe deflation is a greater risk in the first half of the year, others expect inflation or currency depreciation to be possible in the second half.
All in all, this suggests that in terms of the macroeconomic climate, 2021 could be favorable for cryptoassets – and especially for Bitcoin.
2020: what did experts say?
As early as 2019, experts had predicted that 2020 would bring low interest rates. They also suggested the year could see a global recession, which a growing number of economists at the time was forecasting.
With the help of the coronavirus pandemic, these two predictions have proven correct. The fall in (already low) interest rates and a global recession helped boost Bitcoin and other crypto assets, even if the crypto market suffered something like a massive flash crash back in March, when the pandemic hit global markets for the first time shocked.
Experts also suggested that ongoing trade disputes and difficulties could increase investor demand for “safe” assets like Bitcoin. However, international trade has been overshadowed by the response to COVID-19, making it difficult to say whether, for example, the ongoing risk of a no-deal Brexit contributed to the crypto market’s capitalization surge by 207% this year.
Hot money printers and low interest rates
Everyone we’ve spoken to estimates that quantitative easing, and particularly low interest rates, will continue into 2021 (and possibly beyond).
“Interest rates are likely to remain low for the foreseeable future as much of the developed world simply cannot handle higher interest rates,” said Kevin Kelly, Co-Founder and Chartered Financial Analyst at Delphi Digital.
Higher interest rates would tighten financial conditions, increasing default rates and bankruptcies at a time when optimistic growth prospects are already hard to come by.
Kelly added that the monetization of large debt (aka QE) is expected to continue well into 2021, especially as governments spend more government debt to fund the expenditures necessary to keep the global economy alive receive. And he’s not the only one who appreciates this. Bitcoin developer, educator and entrepreneur Jimmy Song suggests that politicians are more or less politically obliged to keep the dollar printer running.
“Quantitative easing is the only way for these politicians to get support. That is why they will do this too. 2021 might not be that crazy in terms of money printing, but the impact of USD expansion should be felt around the world when that newly printed money is in circulation, ”he said Cryptonews.com.
There is now an emerging school of thought that the introduction of effective coronavirus vaccines will help the global economy get off its beaten track in 2021. Bloomberg Intelligence Senior commodities strategist Mike McGlone is more cautious.
“I have no idea how long it will take, but I expect the trends will continue, and I think it’s a little over-optimistic that widespread vaccines will reduce the world’s rapidly growing debt, QE and MMT will repent. ” he said.
Deflation, inflation and devaluation
The continuation of quantitative easing is fueling inflation, although experts believe deflation will be a bigger problem for much of 2021 given the stagnating global economy.
“Deflation is still the dominant trend, particularly due to paradigm shifts in rapidly advancing technology and demographics (aging population). The main indicators are WTI crude oil and natural gas prices, both of which have fallen more than 70% since the financial crisis, ”said Mike McGlone.
However, inflation could appear in some form as currency devaluation in 2021.
“I expect inflation will reappear at some point, but it is more likely that it is currency deterioration and it could do the opposite of what inflation drove down in the 1980s – high rates versus then negative rates in the US to Japan and much of Europe, which may be a stock bear market away, ”said the strategist.
Lyn Alden, analyst and founder of Lyn Alden investment strategy, and Swan bitcoin, a BTC investment app, advisor.
“Many developed countries are deliberately trying to weaken their currencies against other currencies in order to keep their exports competitive on the global stage,” she said.
Alden also told Cryptonews.com It expects inflation to hit towards the end of the year as deficits widen and governments are forced to create even more money to fund them.
“By the end of 2021, I wouldn’t be surprised if inflation started to rise, and that might depend in part on commodity prices, as if OPEC keeps oil supply tight and oil demand will return by the end of 2021, ”she added.
Likewise, Jimmy Song expects inflation to be a problem for smaller economies as the USD remains relatively isolated from the effects of monetary expansion.
“The USD is very liquid, the Turkish lira, for example, not. The less liquid currencies will suffer much more from inflation as people will naturally move to the more liquid currency. The USD will suffer a bit, but only after developing countries suffer, ”he said.
“A crucial moment”
Given the extremely low interest rates, Bitcoin and other crypto assets will appear more attractive to the average investor due to rising inflation and currency devaluation.
“I expect the price of Bitcoin will continue to rise, and it could be similar to the 2017 jump which was over 1,000%,” said Mike McGlone. “The rest of the crypto market that is oversupplied is likely to follow Bitcoin but underperform.”
McGlone added that 2021 could be “almost a perfect storm” for Bitcoin.
“The macroeconomic conditions are particularly favorable. Bitcoin has set the stage for a sharp correction and a period of contempt, an unprecedented QE on a global basis in the year after a supply cut (cut in half) with institutes stepping in and companies like PayPal getting involved in the masses, ”he added.
BTC / USD price chart
However, if the global economy experiences another shock (rather than subdued interest rates and ongoing QE), it can reduce investor appetites for more speculative assets like crypto.
“When economic conditions worsen, BTC and crypto assets can suffer when market volatility subsides or when the risk-off sentiment turns extreme,” said Kevin Kelly.
That scenario seems less likely given the emergence of seemingly effective coronavirus vaccines (although who knows what surprises 2021 may bring). Instead, the overarching macroeconomic conditions could drive investors towards Bitcoin, as other ways to make a profit on capital are few and far apart.
For Henri Arslanian, Global Crypto Leader at PwCAll of this means 2021 could be a key year for crypto.
“I firmly believe that the time we are now passing is viewed as a pivotal moment in the history of money, when developments such as record levels of quantitative easing and financial stimulus with record levels of interest in bitcoin and central bank digital currencies intercept. ”
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