The Democratic Party narrowly triumphed in Georgia’s elections earlier this week, taking control of the US Senate from Republicans. As such, the Democratic-controlled House of Representatives now has more freedom to implement its policies.
UBS Bank analysts believe unified government legislature will soften the path to further fiscal stimulus. According to an Axios report, President-elect Joe Biden is considering a two-pronged stimulus effort in the form of $ 2,000 checks for Americans and a $ 3 trillion tax and infrastructure spending package.
The new fiscal stimulus is expected to boost inflation, weaken the U.S. dollar and bring more buyers into scary assets like bitcoin and gold.
Alex Melikhov, CEO and founder of Equilibrium and EOSDT stablecoin, told CoinDesk that the extra stimulus would inject more liquidity into the markets and likely generate new increases in the price of bitcoin.
The leading cryptocurrency is already in a strong bull market, courtesy of the measures to increase inflation adopted by the Federal Reserve and the US government in the past 10 months to contain the coronavirus-induced slowdown. These measures have led institutions to seek investments that offer protection against inflation.
Bitcoin prices have soared from $ 10,000 to a record high of more than $ 41,000 in the past four months, with publicly traded companies like Microstrategy buying bitcoin to preserve the value of their cash reserves. This trend may pick up speed, as predicted by JPMorgan, with Biden’s additional fiscal stimulus and the Federal Reserve’s continued easing.
“The Biden stimulus may add an extra shock to the price of bitcoin, but nothing more than pushing a freight train into a barrel,” said Jehan Chu, managing partner at Hong Kong-based crypto investment firm Kenetic Capital, to CoinDesk.
The US central bank is unlikely to undo or reduce its $ 120 billion a month asset purchase program soon and is committed to keeping interest rates at record lows for some time after inflation has risen above its target of 2%.
Expected inflation
Market-based inflation measures began to take into account a potential increase driven by stimulus in price pressures in the economy. The 10-year equilibrium rate, which represents how the bond market predicts long-term inflation, rose to 2.09% on Thursday, the highest level in two years, according to the St. Louis Federal Reserve .
The equilibrium rate reached its lowest point near 0.5% in March 2020 and has been increasing ever since. Bitcoin has practically mimicked the rise in inflation expectations over the past 10 months.
The dollar index, which tracks the value of the dollar against major currencies, is also extending its decline in 2020 with expectations of further fiscal stimulus. The index fell to a 33-month low of 89.21 earlier this week, while gold, a traditional inflation hedge, rose to a two-month high near $ 1,960 an ounce.
Beside all that, bitcoin has gained more than 40% since the beginning of the year, just eight days ago. The cryptocurrency set yet another new record of $ 41,026 earlier today.
“Traders are looking for the weakness of the dollar that would correlate with more advantages in bitcoin,” Matthew Dibb, co-founder and COO of Stack Funds, told CoinDesk. “The declines, if any, are likely to be short-lived, with technical indicators suggesting little sign that prices are approaching a peak in the market.”
“The crypto market will eat [Biden’s new stimulus] up, ”he said.
Read too: ‘Bitcoin Rich List’ rebounds and hits all-time high