How have stimulus packages have impacted crypto markets

Guest Author blog October 5, 2020

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How have stimulus packages have impacted crypto markets

As Covid-19 has continued to spread like wildfire across the globe, nations in the developed and developing worlds have passed economic stimulus measures to cope with the socio-economic impact of the virus.

This includes the US, who chose to pass a $2 trillion economic stimulus package on March 26th, and it was at this time that a number of cryptocurrency experts predicted that such measures would trigger gradual increases in the value of tokens such as Bitcoin.

In this post, we’ll ask why this should be the case, and whether the value of Bitcoin and similar tokens have increased in value during recent months?

Why Should Stimulus Measures Benefit Cryptocurrency?

Historically, stimulus measures have had a negative impact on domestic fiat currencies, primarily because most instances see central banks slash the base interest rate in a bid to manage inflation and living costs.

However, this makes the national currency less appealing to foreign investors, causing a decline in capital inflows and devaluing the currency in the process.

Interestingly, the same principle doesn’t necessarily apply to cryptocurrencies, as unlike fiat alternatives they’re not controlled by a central bank or linked directly to a nation’s base interest rate.

As a result, tokens can be theoretically used as a hedge against inflation, particularly as leading currencies such as the USD continue to see their values fall rapidly.

This has encouraged some incredibly bold predictions for Bitcoin and similar tokens between now and the end of 2021, particularly as the former’s price embarked on an upward trend from a trough of $4944.70 (on March 16th) to $12,399.11 (on August 19th).

Interestingly, some digital asset exchanges have suggested that some individuals in the US may have used their stimulus checks to actually invest in tokens such as Biton and Ethereum. Dan Held, the director of the Kraken exchange also said that if every stimulus check was used to invest in Bitcoin, the token’s market cap would ultimately exceed $2 trillion.

How Have Prices Continued to Fare?

Despite the recent price hike and these bold estimates, it seems likely that the modest improvement in Bitcoin prices predicted by the Cointelegraph.com is most realistic.

One of the main reasons for this is the wider economic climate, which may continue to decline even in the wake of further stimulus measures. This will indirectly hit the cryptocurrency market hard, and there’s some evidence that this trend may have already begun to take effect in some economies.

For example, Arthur Idiatulin from Tickmill says that despite the solid retail figures recorded by the US economy in June, rising unemployment and the impending end of the previous stimulus measures are beginning to impact markedly on consumer spending.

So, although the implementation of a further stimulus package could benefit Bitcoin prices once again, some of these gains may be slightly offset by other economic consequences and developments.

However, the Bitcoin price is currently estimated at $10.863.07, which shows that while it has fallen slightly from its August peak, it remains considerably higher than before the announcement of the stimulus measures in March.

This not only confirms that they’ve largely benefitted from the coronavirus outbreak so far, but also that the stimulus packages and monetary decisions imposed by governments are leading to modest hikes for cryptocurrencies.

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