‘Unsustainable’ deficit, inflation means more demand for Bitcoin: Grayscale

Store of value assets, such as Bitcoin (BTC $70,958), will continue to be a hot commodity as the United States government continues to overspend and keep interest rates high, according to Grayscale’s managing director of research Zach Pandl.

“We expect persistent inflation and unsustainable budget deficits to contribute to continued demand for store of value assets, like Bitcoin,” Pandl told Cointelegraph.

Pandl argued that given the current high inflation, the Federal Reserve is unlikely to reduce interest rates anytime soon. However, upcoming events like the Bitcoin halving, scheduled for April 20, as well as rising economic growth and more crypto adoption will fuel Bitcoin’s price.

The Fed won’t be able to cuts rates for a while with core inflation this high, but booming nominal growth, the Bitcoin halving, and adoption trends like tokenization should create a supportive environment for crypto markets.

The inflation in March rose 0.4% month-on-month and 3.5% year-over-year, versus 0.3% monthly increase and 3.4% year-over-year estimates from the Dow Jones economists survey show.

The outcome left many disappointed, as commentators resonated with Pandl's concerns that persistent high inflation rates will hinder the Fed from lowering interest rates in the near future.

EY chief economist Greg Daco told Yahoo Finance that the higher inflation rates puts more pressure on “policymakers to sustain a higher-for-longer monetary policy stance.”

Pandl, however also says that while an increase in the real interest rate is a “short-term negative for crypto,” there will be continued demand for store-of-value assets over the longer term.

From a macro perspective, the 10-year real interest rate soared by 19% from the previous month to 1.934, up from February’s 1.616, which might be a catalyst for prompting investors to gravitate towards less volatile assets such as bonds and term deposits.

There have been several instances over the years when the 10-year real interest rate experienced a major monthly spike, and Bitcoin’s price significantly dropped in correlation.

The 10-year real interest rate. Source: Federal Reserve Bank of St.Louis

The 10-year real interest rate surged by 52.35% from December 2017 to January 2018, rising from 0.573 to 0.873, as per the Federal Reserve Bank of St. Louis data.

Similarly, Bitcoin’s price fell sharply during this period, from approximately $12,839 at the end of December 2017 to $9,240 by the end of January 2018, representing a 28% decline.

Following the release of the most recent CPI information, Bitcoin experienced a minor downward shift in its price, mirroring a similar sentiment from investors.

Data from Cointelegraph Markets Pro and TradingView shows that the BTC price dropped as much as 2.5% on April 10 to an intra-day low of $67,463 on Coinbase.

At the time of publication, Bitcoin’s price stands at $70,640, as per CoinMarketCap data.

In an April 11 post on X, Crypto analyst Matthew Hyland identified the formation of an ascending triangle on the Bitcoin price chart, noting that Bitcoin has established a new resistance level above $71,500, reaching $72,329 on April 8.