Unsustainable Deficit & Inflation Mean More BTC Demand: Grayscale

Grayscale’s managing director of research, Zach Pandl, predicts a continued rise in demand for Bitcoin as a store of value, fueled by persistent inflation and unsustainable government deficits in the United States. Pandl highlights that with current high inflation levels, it’s unlikely the Federal Reserve will lower interest rates in the near term. This situation, combined with the anticipated Bitcoin halving on April 20, along with increasing economic growth and broader crypto adoption, are expected to support Bitcoin’s price growth.

“The Fed won’t be able to cut rates for a while with core inflation this high, but factors like booming nominal growth, the Bitcoin halving, and adoption trends such as tokenization should bolster the crypto markets,” Pandl stated.

Inflation metrics from March indicate a 0.4% month-on-month increase and a 3.5% rise year-over-year, exceeding the Dow Jones economists’ forecast of 0.3% and 3.4%, respectively. These figures reinforce concerns, shared by commentators including Pandl, that high inflation rates may prevent the Fed from reducing interest rates soon. Ernst & Young’s chief economist, Greg Daco, expressed to Yahoo Finance that elevated inflation pressures are likely to necessitate a prolonged period of higher interest rates.

Pandl also noted that while rising real interest rates might initially negatively impact cryptocurrencies, the long-term demand for Bitcoin as a store of value remains strong. From a broader economic perspective, the 10-year real interest rate jumped 19% month-over-month to 1.934 in March, from 1.616 in February. Historically, spikes in the 10-year real interest rate have led investors towards less volatile assets like bonds and term deposits.

Data from the Federal Reserve Bank of St. Louis shows that in December 2017 to January 2018, the 10-year real interest rate surged by 52.35%, and Bitcoin’s price concurrently fell by 28%, illustrating the impact of rising rates on Bitcoin’s market value.

Recently, following the latest Consumer Price Index (CPI) release, Bitcoin’s price slightly declined, mirroring investor sentiment that reacts closely to shifts in economic indicators.

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