The Democratic Party won in the elections held in Georgia earlier this week, and rejected Republicans’ control of the U.S. Senate. As such, the Democratic-controlled House of Representatives now has more freedom to implement its policies.
Analysts at UBS Bank believe that the united government legislature will smooth the path to more fiscal stimulus. According to an Axios report, President-elect Joe Biden is considering a dual incentive effort in the form of $ 2,000 checks for Americans and a $ 3 billion tax and infrastructure spending package.
The new fiscal stimulus is expected to increase inflation, weaken the US dollar and bring in more buyers for scare assets such as bitcoin and gold.
Alex Melikhov, CEO and founder of Equilibrium and the EOSDT stablecoin, told CoinDesk that the extra stimulus will provide more liquidity in markets and is likely to fuel further bitcoin price increases.
The leading cryptocurrency is already in a strong bull market, thanks to the inflation-boosting measures the Federal Reserve and the US government have adopted over the past ten months to counter the slowdown caused by coronavirus. These measures have forced institutions to seek investments that provide a hedge against inflation.
Bitcoin prices have risen from $ 10,000 over the past four months to a record high of more than $ 41,000, and companies such as Microstrategy listed on the stock exchange bought bitcoin to maintain the value of their treasury reserves. The trend may be in line, as predicted by JPMorgan, with the additional fiscal stimulus from Biden and the relaxation of the Federal Reserve.
“The Biden stimulus could give the price of bitcoin an extra boost, but nothing more than driving a freight train together,” Jehan Chu, managing partner of Hong Kong-based crypto-investment firm Kenetic Capital, told CoinDesk said.
The US Federal Reserve is unlikely to withdraw or downsize its $ 120 billion-a-month asset purchase program anytime soon, and is committed to keeping interest rates at record lows for some time after inflation rose above its 2% target.
Inflation expected
Market-based inflation measures have begun to offset a possible stimulus-driven rise in price pressures in the economy. The ten-year break-even rate, which represents how the bond market provides for long-term inflation, rose to 2.09% on Thursday, according to the St. Louis Federal Reserve, the highest level in more than two years.
The break-even rate reached almost 0.5% in March 2020 and has risen since then. Bitcoin has pretty much mimicked the rise in inflation expectations over the past ten months.
The dollar index, which tracks the value of the dollar against major currencies, is also expanding its decline in 2020 on expectations for additional fiscal stimulus. The index fell to a 33-month low of 89.21 earlier this week, while gold, a traditional inflation hedge, rose to two-month highs near $ 1,960 per ounce.
On top of all that, bitcoin has risen more than 40% since the beginning of the year just eight days ago. The cryptocurrency set another new high of $ 41,026 early today.
“Traders are looking at dollar weakness that will coincide with further upside bitcoin,” Matthew Dibb, co-founder and COO of Stack Funds, told CoinDesk. “Dips, if any, are likely to be short-lived, with technical indicators indicating that there are few signs of prices peaking in the bull market.”
‘The crypto market will eat [Biden’s new stimulus] on, ”he said.
Also read: ‘Bitcoin Rich List’ bounces to reach All-Time High