Max Bronstein, who works on Coinbase’s institutional coverage team, believes that “firecrackers” reach the global currency market. In addition, increasing the volatility of national currencies could significantly improve the price of Bitcoin (BTC).
“Much has been said about BTC’s performance during episodes of stock volatility, but not much about how BTC would develop during episodes of volatility in the currency market. With world currency volumes at record lows and a huge wave of new debt, firecrackers are on the verge of entering the market on the foreign exchange market. “
Even before the pandemic hit the international economy, Bronstein pointed out that the global monetary system was very fragile. Many countries risk their currencies depreciating constantly for various reasons.
The analyst said that national currencies are fragile in many countries due to low dollar reserves and high US dollar debt.
The global volatility of the currency drops to a record low. Source: Bloomberg, JPMorgan
Why would this benefit Bitcoin?
National currencies with a history of hyperinflation run the risk of a similar short-term trend. Bronstein cited the Argentine peso, the Turkish lira and the Brazilian real as examples of some currencies with low dollar reserves.
According to Trading Economics, the Argentine peso recorded an inflation rate of 42.1% in May 2020. Bitcoin price could benefit from fear of hyperinflation, massive currency volatility, and devaluation strikes, the analyst says.
The inflation rate of the Argentine peso. Source: Trade Economics
“In all of these cases, the volume and weakness of the currency will be largely due to the government’s need to devalue its currency. Bitcoin, on the other hand, is framed because it can’t be devalued by a central entity. In a regime where almost everyone Governments have an incentive to devalue their currencies if only a few monetary systems would benefit as much as Bitcoin, and an open source competitor for fiat currencies has never been more needed. ”
It is not a short-term effect.
The low historical volatility of the global foreign exchange market does not suggest that a massive movement will start immediately. It also does not suggest that Bitcoin demand will increase in the short term.
In the long run, however Concerns about devaluation and hyperinflation could spur steady demand for Bitcoin. This positive effect on BTC, if it could improve the perception of the best positioned cryptocurrency as a value preservation tool, especially after Bitcoin’s V-shaped recovery from its drop to below $ 3,600 in March, which has proven its viability.
Meanwhile, several other countries are struggling with similar problems related to hyperinflation or devaluation of their national currencies. For example, in Iran and Venezuela, Bitcoin was viewed as a form of payment and digital money that cannot be confiscated as their respective national currencies have experienced increasing hyperinflation in recent years.
Long term, As the infrastructure of the bases that support Bitcoin and cryptocurrencies improves, there is a high possibility that BTC will be used as the currency, possibly alongside the existing currencies.