Federal Reserve “Flexible” Inflation Monetary Policy Could Boost Bitcoin Price as Investors Stock Up on BTC Safe Haven

Lucas Cacioli  Aug 28, 2020 12:30  UTC 04:30

4 Min Read

Federal Reserve Chair Jerome Powell has announced the United States central bank’s new measures to control inflation, in a speech that could have long-term implications for the Bitcoin price and cryptocurrency.

The much-anticipated speech on inflation control by Federal Reserve Chair Jerome Powell took place via webinar at the Jackson Hold symposium on Thursday, Aug 27—and revealed the US central bank is prepared to let inflation rise above its traditional 2% target but did not rule out further quantitative easing.

While the Federal Reserve’s long-term goal is an inflation rate of 2 percent the flexibility of the policy will most likely see periods of much higher inflation. The Chairman’s speech emphasized that the central bank’s actions to achieve economic stability will be most effective if longer-term inflation expectations remain well-anchored at 2 percent. Powell explained that if inflation runs below 2 percent following economic downturns and never moves above 2 percent even when the economy is strong, it will ultimately “pull realized inflation down” which would be far more devastating for the United States economy.

Federal Reserve Chair Powell said:

“To prevent this outcome and the adverse dynamics that could ensue, our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.”

Inflation and Bitcoin

Despite the implication of the Federal Reserve that it will “flexibly” allow inflation to run higher than usual for the next few years, the Bitcoin price and the gold price immediately dipped at the announcement. But shouldn’t higher inflation mean a weaker dollar and a rise in the BTC price and the gold price?

The rationale could be that Bitcoin and Gold were already consolidating due to the bitcoin price and gold price rallies over the last couple of months. Currently the United States national debt stands at $26.5 trillion and Goldman Sachs recently warned that the dollar is in serious danger of losing its global reserve currency status—and a loss of value in the dollar should equate to a rise in Gold and Bitcoin safe haven asset prices rising.

Bitcoin Hedging

Over the last few weeks, some major enterprises and investors have also stepped into the Bitcoin arena and given the safe haven asset their support. On-chart analysis has also shown a massive increase of Bitcoin whales in the build-up to the Federal Reserve announcement, the data shows that there are now more than 2000 wallets holding over 1000 BTC, accounting for over $90 billion worth of BTC in long-term holdings.

The oncoming inflation has been predicted by the likes of investor Jim Rogers who warned in a recent interview, that the efforts of global central banks to stimulate their respective economies through the creation of trillions of dollars in the currency in the COVID disruption will end badly.

Warren Buffet, while still not an advocate of Bitcoin, said that the United States’ stock market is currently at dot-com bubble levels using the Buffett Indicator—which divides the Wilshire 5000 Index by the GDP of the US and could be another bullish signal for the uncorrelated Bitcoin price.

Enterprises have been consolidating on Bitcoin as well now seeing its value as a hedge asset, only two weeks ago publicly-traded billion-dollar software firm MicroStrategy announced its new capital allocation investment strategy — with a purchase of 21,454 Bitcoins. MicroStrategy is the largest independent publicly-traded business intelligence firm used by many of the Fortune Global 500 brands. While yesterday, Fidelity Digital Assets also validated a stock-to-flow valuation model created by Plan B, which predicts Bitcoin’s price at $1 million. The company examined ways that could attract investors to Bitcoin as an investment and noted that Bitcoin is increasingly integrated into traditional investment portfolios.

While the minor pullback in the Bitcoin price may seem discouraging, the overall outlook is extremely bullish for both gold and Bitcoin. Legendary wall street investor George Ball has even marked September 7 as the day he expects the Bitcoin bull run to take off. Ball believes a migration will "ignite" from traditional finance to Bitcoin trading and hedging as citizens will look to secure their wealth in an asset that cannot be "undermined by the government."


Image source: Shutterstock

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