The risk of U.S. fiscal dominance with the monetization of government debt by the Federal Reserve is growing, and such a scenario should be supportive for cryptocurrencies as investors seek out alternative assets, investment bank Standard Chartered said in a research report on Tuesday.
Donald Trump could also be a boon for cryptocurrencies. “We think that a second Trump administration would be broadly positive via a more supportive regulatory environment,” the report said. “In a scenario of U.S. fiscal dominance, we think bitcoin would provide a good hedge against de-dollarization and declining confidence in the U.S. Treasury market,” analyst Geoff Kendrick wrote.
U.S. fiscal dominance would likely have three effects on the U.S Treasury curve: “a steeper nominal 2 year/10 year curve, a greater increase in breakevens than real yields, and an increase in term premium” Kendrick said, adding that the bitcoin price has a positive correlation with all three of these potential developments.
If Trump were to win the election a second administration could accelerate the withdrawal of foreign official U.S. Treasury buyers due to fiscal concerns, the bank said, noting that in his first term average annual net selling of U.S. government debt was $207 billion a year versus only $55 billion under Biden’s presidency.
“In addition to the passive boost to BTC from de-dollarization, we would expect a second Trump administration to be actively supportive of BTC (and digital assets more broadly) via looser regulation and the approval of U.S. spot ETFs,” the report added. Standard Chartered reiterated its bitcoin end of year target of $150,000 and $200,000 for year-end 2025.
