The US Federal Reserve will soon be drafting a policy outline that favors low-interest rates and higher inflation as it pursues a return to pre-pandemic levels of economic activity, people with knowledge of the matter told CNBC on Tuesday.
Past statements from Fed officials and economists, noted analysts, suggest an “average inflation” target of above two percent annually would be both tolerated and desired. However, these came with various economic outcomes. And for Bitcoin, it’s a positive one.
Ed Yardeni of sell-side consulting firm Yardeni Research told the outlet, “We believe that the Fed publicly would welcome inflation in a range of two percent up to four percent as a long-overdue offset to inflation running below two percent for so long in the past.”
Yardeni added the approach would be “wildly bullish” for alternative asset classes such as growth stocks and precious metals like gold and silver.
How will this affect Bitcoin?
For a start, the current levels of inflation are already enough for many Bitcoin investors.
“A General Store was once called a nickel store. Over time, it became called a five-and-dime store (all items priced at either 5 or 10 cents). Today, it’s called a dollar store. Soon, it will be called a ten dollar store,” tweeted Cameron Winklevoss, co-founder of crypto exchange Gemini.
A General Store was once called a nickel store. Over time, it became called a five-and-dime store (all items priced at either 5 or 10 cents). Today, it's called a dollar store. Soon, it will be called a ten dollar store. #Inflation #Bitcoin
— Cameron Winklevoss (@winklevoss) August 4, 2020
Jameson Lopp, CTO of Bitcoin storage company Casa, commented on the announcement of higher interest rates, stating, “The Fed is expected to make a major commitment to devaluing your money. Whatcha gonna do about it?”
Meanwhile, Robert Breedlove of crypto investment firm Parallax Digital, said that apart from inflation, assets like Bitcoin and gold incentivize a saving-based economy while inflation leads to debt.
“Capitalist money (gold and Bitcoin) incentivizes savings—since scarcity drives appreciation—and mitigates market distortions. Socialist money (fiat currency) incentivizes indebtedness, as inflation erodes real debts burdens,” said Breedlove.
Capitalist money (gold and #Bitcoin) incentivizes savings—since scarcity drives appreciation—and mitigates market distortions.
Socialist money (fiat currency) incentivizes indebtedness, as inflation erodes real debts burdens.
Savings + Accountability – Debt = Antifragility
— Robert Breedlove (@Breedlove22) August 5, 2020
Inflation is not the only concern among Bitcoin investors. Earlier this year, Wall Street legend Paul Tudor Jones, founder of asset management firm Tudor Investments, revealed that his firm holds one percent of its assets in Bitcoin. He cited excessive “money printing” as a chief concern.
In contrast to the US dollar, Bitcoin has a fixed inflation rate that decreases over time, as it trends towards zero inflation. So maybe Bitcoin’s not the answer, yet.