The US Federal Reserve has declared that it is prepared to tolerate inflation in excess of 2%. At this announcement BTCUSD, which is the reference pair for the Bitcoin exchange with the US dollar, rose in value to $11,600, but then retraced.
The words of Fed president Jerome Powell were very clear:
“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”.
The news suggests that the US dollar could depreciate. By contrast Bitcoin, with its deflationary nature, could increase in price.
Bitcoin, new bull run?
The announcement of the Fed adds up to a central event for Bitcoin, the halving event of May: with the reduction of the rewards for the miners, the production of bitcoin was also halved.
This is where a significant difference between the dollar and bitcoin emerges. While hypothetically the first can continue to print banknotes, it is not possible to mine bitcoin indefinitely.
Satoshi Nakamoto designed bitcoin so that up to 21 million BTC could be put into circulation, which makes it deflationary, as opposed to the inflationary nature of the dollar that risks causing the currency to lose value.
In 2016, after the halving, Bitcoin started a long run that led it to increase in price until December 2017, when it touched $20,000 (and then dropped).
At that time, however, the world was not experiencing the economic crisis currently caused by the Coronavirus.
Overall, everything suggests that the conditions are in place for Bitcoin to increase in value. This is also the opinion of an expert in the field, Tyler Winklevoss, according to whom the risk of high inflation of the US dollar will increase the value of Bitcoin up to $500,000.
There is nothing concrete that can actually indicate whether BTC will actually reach these figures. Yet surely Bitcoin, as well as gold, could become safe-haven assets if the US currency significantly loses its purchasing power.
It has to be said that this time the world of institutional investors seems much more vigilant. For them, investment proposals are increasing. The latest one is Fidelity Investment, which has filed with the SEC the documentation for the Wise Origin Bitcoin Index Fund. Entry fee: $100,000.
BTCUSD, the stalemate phase
What is certain is that this week Bitcoin has not actually grown, on the contrary, its weekly value (updated as of Friday, August 28th) has decreased by about 2.5%.
Bitcoin has consolidated its $11,300 support, but is unable to break through the 11,500 wall, excluding the reaction to Jerome Powell’s words, which was followed by a retracement.
Ultimately, Bitcoin remains in the hands of speculation.