BitcoinBTC—alongside other major cryptocurrencies ethereum and XRPXRP—have lost momentum after surging into 2023 (though a surprise leak from a major tech company could mean that’s about to change).
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The bitcoin price has lost around 60% since peaking at almost $70,000 per bitcoin in late 2021, wiping around $2 trillion from the price of ethereum, XRP and the rest of the crypto market—even as a BlackRock insider primes the market for a $17.7 trillion earthquake.
Now, as the Federal Reserve grapples with a $33 trillion U.S. “debt death spiral,” Jefferies’ analysts have warned the Fed will be forced to restart its money printer—potentially collapsing the U.S. dollar and fueling a bitcoin price boom to rival gold.
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“G7 central banks, including most importantly the Federal Reserve, will not be able to exit from unconventional monetary policy in a benign manner and will ultimately remain committed to ongoing central bank balance-sheet expansion in one form or another,” Christopher Wood, global head of equity strategy at Jefferies, wrote in a note to clients seen by CNBC, calling bitcoin and gold “critical hedges” against the return of inflation.
The Fed began the laborious task of shrinking its swollen near-$9 trillion balance sheet in the spring of 2022 following huge expansion though the Covid-19 pandemic and economically disastrous lockdowns. So-called quantitative tightening sees the Fed suck liquidity out the financial system, passing on the burden of freshly issued debt to the private sector.
As well as reducing its balance sheet, the Fed has been hiking interest rates at a historic clip as it struggles to bring soaring inflation under control, creating what some fear could become a counter-intuitive “death spiral” for the U.S. dollar that ultimately pushes up the bitcoin price.
The Fed could be forced to suddenly flip dovish in the face of a U.S. recession due to a larger-than-usual lag in the Fed’s inflation reducing interest rate hikes following the money supply explosion through 2020 and 2021.
“Such a failure to exit from unorthodox monetary policy in a benign manner is likely to culminate in the collapse of the U.S.-dollar paper standard to the benefit of both gold bullion owners and also owners of bitcoin,” Wood wrote.
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Meanwhile, bitcoin—and to a lesser extent other major cryptocurrencies such as ethereum and XRP—have seen a sharp rise in institutional interest, led by the world’s largest asset manager BlackRock.
“Bitcoin has now become investible for institutions, with custodian arrangements in place for digital assets, and represents an alternative store of value to gold,” Wood wrote.
In June, BlackRock sparked a Wall Street rush toward bitcoin and crypto, with its legendary chief executive Larry Fink flipping bullish on bitcoin after years of scepticism.
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