Bitcoin is poised to cement its reputation as digital gold, some analysts say, but that rally could come at a significant cost to the U.S. economy. A weakening U.S. dollar could be a catalyst for Bitcoin to reach new all-time highs, according to Zach Pandl, Managing Director of Research at Grayscale Investments.
Pandl sees the U.S. dollar on the verge of a significant decline. “There are long-term macro trends that will play out regardless of who takes the White House in November,” he said, referring to the presidential race between Vice President Kamala Harris and former President Donald Trump.
Pandl, a former macroeconomics and market strategist at Goldman Sachs, believes that the value of the dollar could fall significantly in the next 10 to 20 years, and potentially even sooner depending on the outcome of the election and subsequent monetary policies. According to the analyst, this expected decline in the value of the dollar will cause Bitcoin’s value to increase against the currency, attracting more investors to BTC.
The mechanism behind this potential scenario involves the issuance of U.S. government debt. For decades, the U.S. has financed its operations through the issuance of Treasury bonds, benefiting from the dollar’s status as the world’s reserve currency. This has led to continued demand for these bonds from countries like Japan and China. However, the national debt is currently around $33.2 trillion, exceeding GDP by 123%, which is expected to be around $27 trillion in 2023.
The analyst said that if the government needed to borrow more to meet interest payments on existing debt, this could lead to a situation where demand for bonds could not keep up with issuance. In this case, the US would face two undesirable outcomes: defaulting on its debt or printing more dollars to buy the debt, which would cause an inflationary shock.
“Bitcoin has become a trillion-dollar asset at a time when the dollar is extremely strong,” Pandl said. Since Bitcoin’s supply is limited to 21 million, it is immune to monetary depreciation, unlike the dollar. “Do you know what will happen to this asset when we have a period where the dollar is constantly losing value?” Pandl rhetorically hinted that Bitcoin’s value could increase.
However, not everyone agrees that massive inflation is inevitable or that Bitcoin should be viewed as a store of value comparable to traditional safe assets like gold. This skepticism contributes to Bitcoin’s controversial status, setting it apart from other cryptocurrencies like Ethereum. “Bitcoin emerged as a direct response and rejection of the traditional financial system,” Pandl said.
*This is not investment advice.