A report from Saxo Bank claims that inflation could soar and propel the dollar to record highs by expected economic stimulus policies that U.S. President-elect Donald Trump may introduce and this could result in the price of Bitcoin hitting more than $2,000 in 2017.
According to CoinDesk data, Bitcoin is currently trading around $754.51. A handle of over $2,000 would represent 165 percent appreciation.
Talks about an increase in fiscal spending were made by Trump during his election campaign. From approximately $600 billion to $1.2-1.8 trillion, or some 6-10 percent of the country’s current $18.6 trillion economy, this could increase the roughly $20 trillion of U.S. national debt and triple the current budget deficit, Saxo Bank’s note said.
As a result, the U.S. Federal Reserve would be forced to hike interest rates at a faster pace and causing the U.S. dollar “to hit the moon” as the economy will grow and inflation will “sky rocket”.
The Federal Reserve may raise interest rates to bring it under control when inflation rises. And since the dollar would be seen as an attractive currency for foreign investors, the dollar would appreciate.
“This creates a domino effect in emerging markets and China in particular, leading people globally to look for alternative forms of currencies and payment systems not tied to central banks that have exhausted monetary policies or crony governments that are in full financial repression mode nor transaction systems that are long overdue for a revolution,” Steen Jakobsen, chief economist at Saxo Bank, wrote in a note.
And as emerging market countries look to move away from “being tied” to the monetary policy of the U.S. and banking system, Bitcoin as the largest cryptocurrency would benefit from this “chaos”, he added.
“If the banking system as well as sovereigns such as Russia and China move to accept Bitcoin as a partial alternative to the USD and the traditional banking and payment system, then we could see Bitcoin easily triple over the next year going from the current $700 level to +$2,100 as the blockchain’s decentralized system, an inability to dilute the finite supply of bitcoins as well as low to no transaction costs gains more traction and acceptance globally,” Jakobsen said.
Every transaction using the digital currency is recorded so that it can’t be tampered with and Blockchain is the underlying technology of bitcoin which makes this possible.
But Bitcoin also has a finite supply of 21 million bitcoins. And over a long period of time, this in theory would cause price appreciation of the asset.
The economist says that his views are not the official outlook for Saxo Bank and Jakobsen’s comments were in his annual “Outrageous Predictions” note. Instead they are an attempt to “get you to think out of the box” with the aim of “provoking conversation”.
But indications are that the $2,000 handle is not unrealistic, says Bitcoin advocates, noting the slower appreciation of the dollar against the yuan in comparison to bitcoin against the dollar. While bitcoin has gone up 20.7 percent in the last three months, the dollar has risen 3.3 percent against the yuan in the same time period.
The current situation of cryptocurrencies to the advent of digital cameras was compared by Bobby Lee, chief executive at bitcoin exchange BTC China. He said that it is a “new asset class” with long-term potential.
“It’s the advent of digital currency and with bitcoin there is bound to be more in circulation value in the coming years,” Lee told CNBC by phone. The amount of bitcoin in circulation is valued at around $12.1 billion.
(Adapted from CNBC)