Russell Napier, the founder of research platform ERIC, predicted that inflation would rise by more than 4 percent next year in developed economies. The prediction surfaced in the wake of governments’ inclination to become debt guaranteers during the ongoing virus-led economic crisis.
Magic Money Tree
Mr. Napier noted that governments in Europe and the U.S. ensure that the commercial bank lends by promising to cover bad debts. That leaves the banks with very narrow interest rate-based returns while putting additional monetary risks on the national exchequers.
While on the one hand, guaranteeing loans allow money to enter the markets quickly; the other side ends up pushing individuals and companies in additional debts. Meanwhile, governments launch new lending programs to refinance bad mortgages. Hence, the bubble continues.
“It’s pure politicization of credit,” Mr. Napier said. “This is the magic money tree.”
As inflation rate spikes unprecedently, it leaves investors with limited assets to protect themselves from depreciating cash. Even a perceivably safer bond market is offering lower yields as the Federal Reserve maintains interest rates close to zero.
That pushes investors to offbeat but higher-yielding safe-havens such as Gold and stocks.
Meanwhile, Bitcoin offers an alternative to traditional assets because of two principal reasons. First, the cryptocurrency is deflationary thanks to its 21 million supply cap. And second, its ownership is easily transferrable across borders – a use case Gold lacks.
A recent Bloomberg report cited Bitcoin’s limited supply as one of the primary reasons it could propel towards $20,000 – it’s all-time high – in 2020. Excerpts:
“In the unlikely event of a significant change for the worst, we expect the Bitcoin price to continue appreciating. This unprecedented year of central-bank easing is accelerating the maturation of the first-born crypto toward a digital version of gold while accentuating oversupply constraints in most of the market.”
With Mr. Napier suggesting inflation, which may lead to depreciation in the value of the U.S. dollar, the scenario may serve Bitcoin an excellent opportunity to reclaim its all-time high.