A vaccine against COVID-19 seems to be bad news for Bitcoin at first. In fact, this is a very bullish development for BTC.
The coronavirus pandemic initially hit all markets hard, including those for crypto-currencies. In March 2020, the BTC/USD exchange rate fell by more than 60 percent in just two trading sessions, and its decline coincided with a crash in the global financial market.
Later, central banks reacted by lowering key interest rates, combined with programs that endlessly bought up government and corporate debt. The pseudo-quantitative easing, followed by governments’ decision to spend trillions of dollars on their welfare programs, reduced the purchasing power of the U.S. dollar.
The dollar’s decline and negative-returning debt prompted investors to seek profits in scarcer assets, leading to a massive recovery in the Bitcoin market. Between March and now, the crypto-currency rose by more than 350 percent, reaching $19,000 for the first time since December 2017.
Bitcoin reached a new yearly high on Tuesday due to its growing appeal as a safe haven.
But the prospects for a global economic recovery are improving. In the last two weeks, three pharmaceutical companies have presented their respective vaccines, each of which certifies at least 90 percent efficacy against COVID-19.
The news sent Gold, Bitcoin’s main competitor, down two weeks in a row.
Surprisingly Bitcoin (buy now? Here it goes to the guidance?) itself did not move further downward, to which also its booming acceptance with the large financial houses contributed (see PayPal). The market’s desire to re-test $20,000, Bitcoin’s previous record high, caused speculative bullish bets to rise further in both the cash and derivatives markets.
Vaccine could push Bitcoin
The latest Bitcoin investors, including financial veterans like Paul Tudor Jones and Stan Druckenmiller, admit they are long on the crypto currency because it allows them to protect their portfolios from the dangers of dollar devaluation and higher inflation.
MicroStrategy, a Nasdaq-listed company that has replaced its $425 million cash reserves with Bitcoin, agrees.
This is because a COVID 19 vaccine would not change the policies that Bitcoin has pushed so far. The “Fed Funds Futures Curve” assumes that the next interest rate hike will be in 2023.
Meanwhile, the US Tips 10-Year Inflation Breakeven Rate shows a continuous upward trend – indicating that the market expects higher inflation.
US Tips 10-Year Inflation Breakeven Rate.
In short, the damage done to the economy during the lockdown will take more time to heal. A vaccine will only accelerate the healing process, but it also tends to push up inflation as people return to their pre-pandemic lives.
For example, the price index for private consumer spending (a barometer used by the Federal Reserve to measure inflation) was 1.4 percent in October 2020 – just below the central bank’s target of 2 percent.
Economists predict that it will rise to 1.7 percent by the end of November 2020.
Ellen Zentner, Chief Economist at Morgan Stanley, expects inflation to reach 2 percent by the end of 2022. At the same time, Joel Prakken, Chief Economist at IHS Markit, estimates that oil prices will rise and the dollar will continue to weaken as the economy recovers. This will also drive up inflation.
All in all, the above forecasts put Bitcoin in a thoroughly bullish situation in the coming years.