A gloomy outlook for the US dollar is leaving Bitcoin with a potential to continue its bull run towards $20,000.
Mark Wilson, the chief investment officer and chief US equity strategist for Morgan Stanley, told Bloomberg that he sees the US dollar crashing by another 10 percent within the next twelve months. The analyst noted that the Federal Reserve and the US government has been “the most aggressive with structural deficits” amid the coronavirus pandemic.
“A weaker dollar is helpful for the world,” he added. “A stronger one is more of a constriction on global growth […] It is ultimately a positive story for reflation.”
Analysts at JP Morgan & Chase Co. also believed in a bearish US dollar outlook for 2021. The bank’s lead portfolio manager in Asia rates and forex, Julio Calegari, said that China’s post-pandemic growth reduced the greenback’s investment appeal.
The statements appeared as Bitcoin continued to tower near its recently established all-time high of $19,915. That brought its year-to-date profits up by 179 percent as of this Tuesday. The BTC/USD exchange rate was up 5.61 percent on a weekly timeframe, a complete opposite of how the US dollar index performed.
They moved opposite because investors sought cash safety against an uncertain economic outlook led by the fast-spreading COVID-19 pandemic. As governments announced lockdowns, the stock market crashed. That led people to unload their profitable positions elsewhere to raise dollars.
Nevertheless, a large scale intervention by the Federal Reserve and the US government eased cash demand. They together committed to injecting about $3 trillion worth of liquidity via unlimited bond purchasing and by deciding to expand their fiscal deficit. As a result, the dollar fell, and Bitcoin — thanks to its safe-haven narrative — rallied higher.
In its latest minutes, the Federal Reserve has confirmed that it would keep the bond-buying pace intact amid a lower interest rate environment. Meanwhile, investors have increased their bets that the bank would now start buying longer-dated US Treasury notes because the yields on the short-term ones are already near zero.
Overall, the scenario makes Bitcoin a stronger investment alternative to the US dollar and bonds. That explains why the cryptocurrency could breakout above $20,000 in the coming quarterly sessions.