Bitcoin (BTC) and other store-of-value assets will continue to be in high demand due to the overspending and high interest rates of the United States government, according to Zach Pandl, the managing director of research at Grayscale. Pandl believes that persistent inflation and unsustainable budget deficits will contribute to the need for assets like Bitcoin. He also predicts that upcoming events such as the Bitcoin halving, increasing economic growth, and greater adoption of cryptocurrencies will drive up the price of Bitcoin.
In March, inflation rose by 0.4% month-on-month and 3.5% year-over-year. This was higher than the estimates from Dow Jones economists, which were 0.3% monthly increase and 3.4% year-over-year. This disappointment supports Pandl’s concerns that high inflation rates will prevent the Federal Reserve from lowering interest rates in the near future. Greg Daco, the chief economist of EY, also agrees that higher inflation rates put pressure on policymakers to maintain a higher-for-longer monetary policy stance.
However, Pandl acknowledges that an increase in the real interest rate is a short-term negative for cryptocurrencies. Nevertheless, he believes that there will still be demand for store-of-value assets in the long run. The 10-year real interest rate has recently increased by 19%, reaching 1.934, which might prompt investors to turn to less volatile assets like bonds and term deposits.
Historically, there have been instances where a spike in the 10-year real interest rate resulted in a significant drop in Bitcoin’s price. For example, from December 2017 to January 2018, the rate surged by 52.35%, and Bitcoin’s price fell by 28% during the same period. This correlation suggests that investors may be influenced by changes in interest rates when it comes to Bitcoin.
Following the release of the latest Consumer Price Index (CPI) information, Bitcoin experienced a minor drop in price. On April 10, the price dropped by as much as 2.5% to an intra-day low of $67,463 on Coinbase. However, at the time of publication, Bitcoin’s price stands at $70,640.
In conclusion, Pandl believes that store-of-value assets like Bitcoin will continue to be in demand due to inflation and unsustainable budget deficits. While an increase in the real interest rate may temporarily affect cryptocurrencies, there will still be a need for these assets in the long term. Investors should be mindful of changes in interest rates as they can impact the price of Bitcoin.