American President Donald Trump and the Bitcoin community have been butting heads as of late. Not only because of his impassioned “tweetstorm” against cryptocurrency, but also due to the economic and fiscal policies he wants to impose on the United States.
Trump believes it is best for the Federal Reserve (Fed), which is notably an independent organization from the government, to lower interest rates and commence use of inflationary policies.
While he believes it will help him win the upcoming election and boost the American economy, many just see this as a clear-as-day signal to buy Bitcoin — and gold for good measure.
Trump Wants Lower Interest Rates
Ever since 2008’s Great Recession, interest rates have been lower than ever. For those not versed in basic macroeconomics, low interest rates are an inflationary policy, with so-called “cheap” or “easy” money results in consumers borrowing more and the amount of money increasing.
However, the Federal Reserve has tried to scale back such policies over recent years, which was best exemplified during December 2018’s stock market blip, during which many large-cap technology companies shed over 20% as a result of expectations of rate hikes.
For obvious reasons, Trump hasn’t been all too pleased with the proposed growth in rates, leading him to bash Jerome Powell at the Fed. Surprisingly, the Fed capitulated, with the rate hike being put on pause. Six months after this debacle, it seems that Trump still isn’t entirely satisfied. Just look at the tweet below.
What the President wants is lower rates, more spending, and thus better economic numbers and more growth in the stock market.
It is far more costly for the Federal Reserve to cut deeper if the economy actually does, in the future, turn down! Very inexpensive, in fact productive, to move now. The Fed raised & tightened far too much & too fast. In other words, they missed it (Big!). Don’t miss it again!
— Donald J. Trump (@realDonaldTrump) July 22, 2019
That’s not all. CNBC reports that in relation to cutting rates, Trump also is looking into artificially devaluing the U.S. dollar against foreign currencies, a tactic that some have accused China of enlisting.
All this, as some economists and cryptocurrency investors see it, is entirely bullish for Bitcoin and other decentralized, non-sovereign digital assets.
As Travis Kling, a Wall Streeter-turned-Bitcoin diehard, recently explained, the rate cuts are “brazenly bullish for a non-sovereign, hardcapped supply, global, immutable, decentralized digital store of value.” (He means Bitcoin.)
Why This is Bullish for Bitcoin
Low interest rates, which have been coupled with Open Market Operations (OMOs) — when central banks purchase government securities off the open market — are inflationary policies. While core inflation numbers, as marked by the CPI and RPI, are still low, are at around 2%, OMOs, also sometimes defined as Quantitative Easing, and low rates, have resulted in an asset bubble that is being propped up by low interest rates.
But as aforementioned, low interest rates normally lead to inflation with time. Thus, the Federal Reserve may soon be mandated to hike rates to stem inflation, thus resulting in a collapse in the stock market.
Not only is Bitcoin reported by markets analysis firms to be not correlated with traditional assets, meaning that it could be safe in a recession, but the cryptocurrency is not subject to inflation by a central authority.
Prominent investors, media personalities, and economists have begun to acknowledge this. As reported by Blockonomi previously, Chamath Palihapitiya, a former Facebook executive, told CNBC that Bitcoin is the perfect hedge “against the traditional financial infrastructure”. He elaborated that if fiscal or monetary policy is wonky, as it arguably is now, having Bitcoin is like “the schmuck insurance you have under your mattress”.
Tyler Cowen, an economist that frequents Bloomberg’s op-ed column, recently wrote an article detailing four reasons why he believes Bitcoin will succeed. A number of those reasons mentioned Bitcoin’s viability as a hedge against populism and geopolitical unrest.
And, legendary hedge fund investor Ray Dalio, while not a fan of Bitcoin, noted that now is a good time to begin stocking up on gold as a result of central bank policies. BTC, of course, has been deemed by many to be a successor to be the precious metal.