In mid-March, many Americans received incentive checks from the government, and while the payout – $ 1,400 for every U.S. citizen earning less than $ 80,000 a year – will be a blessing to millions of people in dire financial straits as a result of the coronavirus crisis. This increased the specter of inflation again. And like many other things, so is Bitcoin (BTC) here.
On March 15, Galaxy Digital CEO Mike Novogratz offered NBC Squawk Box a new role for Bitcoin in light of recent stimulus measures – as a “citizen report card on how the government manages the economy.” If people think that US Treasury Secretary Janet Yellen et al. File. You can safely land this “mega supertanker” which is an economic and monetary incentive, Novogratz said, and then “people will stop switching to bitcoin.” But so far “We are in unknown territory when it comes to the amount of money we print, and Bitcoin is a report card.”
Podcaster Preston Pisch called for the same thing a few days ago in response to news that the US House of Representatives has adopted a $ 1.9 trillion aid package from COVID: “Think of #Bitcoin as a manipulation measure.”
What about this? An exciting new utility case for the world’s first cryptocurrency – a kind of listing tool for monetary policy makers? Or just another fantasy of bitcoin extremists?
There is no “evidence” that Bitcoin is a hedging instrument.
David Ermak, Leonard’s professor of finance at New York University’s Stern School of Business, rejected the idea that BTC could act as a ‘report card’ for governments, telling the Cointelegraph: “There is no evidence that Bitcoin provides protection against actions from a sovereign currency “He added that” when looking at large samples for research purposes, it is very difficult to find statistical evidence in the strict sense of the word. ”
Others claim that Bitcoin is very imprecise in scale. If inflation rises 2.4% during the year, as the Fed recently predicted, will BTC rise 2.4%, or any of its robust numbers? Or conversely, if the Fed reduces the money supply by lowering inflation, the price of BTC will fall? BTC must be closely linked to inflation to be useful as a feedback tool, and this seems unlikely.
“The increased liquidity in the Federal Reserve has sustained growth in almost every major asset class, with some purely speculative games like Bitcoin earning more,” said Eswar Prasad, a professor of economics at Cornell University and a senior fellow at the Brookings Institution. Cointelegraph by adding:
“Bitcoin prices are hardly seen as a reliable reference for any monetary policy, especially since they trade in a relatively weak market that seems vulnerable to manipulation and speculative waves.”
Novogratz has received some support for his hypothesis – albeit on Twitter. On February 28, he conducted an informal inquiry in which he asked the question: “Is $ BTC a report card for monetary and fiscal policy?” When more than 3,000 votes were counted, 70.8% answered “yes” and 29.2% answered “no”.
Nick Battia, author of Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currency and assistant professor of finance and business economics at the University of Southern California, told the Cointelegraph that fiscal incentives must be disconnected from monetary incentives.
There is clearly a positive correlation between fiscal stimulus and bitcoin price in the short term, he said. When people have new campaign controls in their pockets, they are more likely to buy bitcoins, which will increase the price of bitcoins. In fact, a recent study by Mizuho Securities found that stimulus measures in the United States could increase the market value of bitcoin by as much as 3% – although this study was a small sample.
In any case, it is difficult to show the relationship between monetary incentive and BTC, Bhatia continued. In the long run, most bitcoin advocates are likely to believe that there is a positive correlation between monetary stimulus and BTC – that is, people who fear stimulus inflation will seek refuge in BTC, “but it can not be proven.” According to Bhatia, the reason why the price of BTC is now rising – and will continue to grow – is “the growing dominance of cryptocurrencies in the international monetary system,” he told the Cointelegraph.