Bitcoin has been a better-performing asset than traditional investments during periods of increased liquidity. That poses the question of how the cryptocurrency will behave in the further course of monetary policy relaxation.
As reported by Ecoinometrics, Bitcoin grew by 150% CAGR during the 2020 liquidity boom. That is much higher than NASDAQ and gold. As uncertainties about another liquidity injection rise, investors look at Bitcoin and its capacity to remain the leading asset again.
Bitcoin’s Performance During Monetary Expansion
During the year 2020, as the world grappled with the COVID-19 pandemic, central banks especially the one in the United States pumped in a huge amount of money into the economy to cushion the impact of the pandemic. The M2 money supply in the United States only increased by $6 trillion.
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Ecoinometrics data reveal that during this period, Bitcoin was most profitable with a CAGR of 150% compared to NASDAQ, which it beat 4 times, and gold, 20 times.
In the periods of high inflationary environment, people have tended to turn to Bitcoin as a store of value. Its lack of a central authority and its limited supply also make it attractive to those who want to invest in it as a hedge against the depreciation of fiat currencies.
This capacity to deliver better results than traditional assets during the conditions of increased liquidity has strengthened its image among both institutional and individual investors.
Current Economic Landscape and Future Outlook
Currently, the global economies are not witnessing the kind of monetary growth that was witnessed in the year 2020. Therefore, the price of Bitcoin has been rather stable. It has not seen the same fluctuations observed during the periods of fast liquidity expansion.
However, the experts believe that the increased levels of global debt and budget deficits may force central banks to provide more liquidity into the economy. If another round of monetary expansion happens in the future, Bitcoin may be on the path to another rally.
Ecoinometrics also pointed that Bitcoin has its best performance when fiat currency is being devalued. Therefore, it could expect to outperform NASDAQ and gold in the next liquidity driven market.
The Role of U.S. Elections in Bitcoin’s Future
Another factor that may drive up the price of Bitcoin is the upcoming U.S. presidential election. Bernstein analysts estimate that if Trump wins the elections, the price of Bitcoin may even exceed the previous record of $73,949.
This is because Trump has been known to support policies that promote the growth of cryptocurrencies. Moreover, Trump’s recent interest in the crypto market has only further cemented his stance as a pro-crypto president.
On the other hand, Kamala Harris, the Democratic candidate, has also hinted at plans of providing a better guideline on how to approach cryptocurrencies. The views of both candidates can be interpreted as positive for Bitcoin, no matter whom the American public chooses in the elections.
Standard Chartered has predicted that Bitcoin could reach $150,000 in the event of a Trump victory. Others foresee a price of $200,000 by 2025, irrespective of the election results.
Bitcoin’s Current Price and Market Sentiment
As of mid-October 2024, Bitcoin has surged past $67,000, marking a significant recovery and pushing its market cap to $1.33 trillion. Over the past year, Bitcoin has delivered a 142% increase, driven by growing adoption and renewed confidence in the crypto space.
Additionally, the recent rise in Bitcoin exchange-traded funds (ETFs) has further solidified the cryptocurrency’s presence in traditional financial markets.
This comes after market analysts claimed that the cryptocurrency market had broken a seven-month falling trend. This puts the coin in a position to make further gains. With buyers under pressure and major technical barriers being challenged, many traders remain bullish on the short-term direction of Bitcoin.
