Bitcoin has got a lot of attention in recent months as a potential hedge against inflation.
In May, famed hedge fund manager Paul Tudor Jones set the cryptocurrency world alight when he revealed he was “betting on bitcoin” to protect against the “unprecedented expansion of every form of money.”
Now, U.S. Federal Reserve chairman Jerome Powell is this week expected to lay out a set of measures aimed at pushing inflation higher, something that some bitcoin market watchers fear could be “playing with fire.”
Powell, due to speak on Thursday during a virtual version of the Fed’s annual Jackson Hole conference in Wyoming, is expected to signal a more relaxed approach to managing price pressures that could mean a stronger rise in long-term U.S. inflation.
The Fed chief “will outline what could be the central bank’s most active efforts ever to spur inflation back to a healthy level,” CNBC’s financial editor Jeff Cox wrote on Monday.
Powell is thought likely to use the phrase “average inflation” targeting, meaning the Fed would allow inflation to run higher than its target 2% for a while as it spent some time significantly under that level in the aftermath of the March global market meltdown, sparked by the coronavirus crisis.
“Especially at this time, for the Fed to announce that it’s about to actively devalue the money in people’s accounts doesn’t seem like a great idea,” Mati Greenspan, the founder of market analysis company Quantum Economics, said via email.
“As it is, with all the stimulus going on, people are already questioning the value of money. The Fed is basically playing with fire here.”
The U.S. has pumped trillions of dollars of stimulus measures into the economy in response to the coronavirus pandemic, with the Fed indicating there will be more to come.
“I am concerned about the road we are heading down,” bitcoin and crypto investor Anthony Pompliano wrote in his popular daily newsletter, pointing to the “weakening the efficacy of central bankers’ tools,” the widening wealth inequality gap, and “the inevitable demise of the U.S. dollar as the global reserve currency.”
“While people are celebrating the stock market and real estate values being at all time highs, what they don’t recognize is that it isn’t assets being worth more, but dollars being worth less,” Meltem Demirors, chief strategy officer of CoinShares, an digital asset investment firm, said via email.
Some expect a weakening U.S. dollar to further boost the bitcoin price, already up around 60% so far this year.
“The major impact for crypto out of this symposium would be a change in monetary policy and further depreciation of the U.S. dollar, which could propel bitcoin higher,” Matthew Dibb, co-founder of Asia-based provider of cryptocurrency trackers and index funds Stack, told bitcoin and crypto news outlet Coindesk.
Bitcoin, which has a hard limit of 21 million possible tokens, has developed a reputation among some as “digital gold”— putting it in contrast with fiat currency.
“Printing of historic sums of helicopter money that’s pushed into the financial system has devalued the dollar and prompted inflation fears,” Nigel Green, chief executive of financial advisory group deVere, said via email, adding: “You can’t just print bitcoin.”
“As uncertainty heightens, investors will pile into safe-haven assets, in particular those not tied to any specific country, such as bitcoin and gold,” Green said, predicting the upcoming U.S. presidential election and the weakening dollar will serve as “high-octane drivers” for the bitcoin price for the rest of 2020.