Bitcoin has surged to over $34,000 per bitcoin in the last week, topping off a year that saw the cryptocurrency climb more than 300%.
The bitcoin price, after suffering through a three-year bear market, began to rally in October—breaking into fresh territory last month as a wave of big-name investors name bitcoin as a potential hedge against inflation.
Now, Morgan Stanley MS analysts have warned the huge government and Federal Reserve spending through the coronavirus pandemic could result in “higher inflation than many, including the Fed, expect.”
“With global GDP output already back to pre-pandemic levels and the economy not yet even close to fully reopened, we think the risk for more acute price spikes is greater than appreciated,” Morgan Stanley equity strategists, led by Michael Wilson, wrote in a note this week.
MORE FOR YOU
In August, the Fed said it would try to overshoot its 2% inflation target, ending a policy that’s been in place since the 1950s to preemptively hike its benchmark interest rate to ward off expected inflation.
Since March the Fed has bought over $1 trillion in securities, flooding the market with cash as the government has distributed billions of dollars worth of stimulus checks. Morgan Stanley cautioned that prices could spike once the pandemic subsides and pent up demand hits the market.
The expectation that a tidal wave of inflation was imminent caused renowned macro investor Paul Tudor Jones to reveal he was buying bitcoin futures in May last year, with others quick to follow.
Since then, bitcoin’s reputation as “digital gold” has swelled, helped by its fixed 21 million token limit and its ability to survive repeated downturns.
“With the macroeconomic backdrop of unprecedented monetary expansion and negative real interest rates spurred on by Covid-19, it is no wonder that investors of all types are looking at hard assets such as bitcoin as a gold alternative and a hedge against inflation,” Charles Hayter, the chief executive of bitcoin and cryptocurrency data site CryptoCompare, wrote in a Tuesday note.
Meanwhile, many in the bitcoin and cryptocurrency community are feeling upbeat, cheering what they have long claimed is inevitable.
“The value of bitcoin in the long-term is almost guaranteed to rise due to limited supply, which makes it attractive for underbanked populations and any other traditional investors, especially when compared to fiat currencies subject to crippling inflation and unlimited supply,” Brandon Mintz, the chief executive of Atlanta-based cryptocurrency ATM operator Bitcoin Depot, said in emailed comments.