Max Bronstein, who works in Coinbase’s Institutional Hedging team, believes that „fireworks“ are coming to the global currency market. In addition, an increase in the volatility of national currencies could greatly benefit the price of Bitcoin (BTC).
„Much has been said about Bitcoin Evolution performance during episodes of stock volatility, but not much about how BTC would perform during episodes of volatility in the foreign exchange market. With global currency volumes at record lows and a large wave of new debt, the fireworks are about to hit the foreign exchange market.
Even before the pandemic hit the international economy, Bronstein noted that the global monetary system was very fragile. Many countries risk seeing their currencies constantly devalue for a variety of reasons.
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The analyst said national currencies are vulnerable due to the low dollar reserves and high dollar-denominated debts of many nations.
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Why would this benefit Bitcoin?
National currencies with a history of hyperinflation risk seeing a similar trend in the short term. Bronstein pointed to the Argentine peso, the Turkish lira and the Brazilian real as examples of some currencies with low dollar reserves.
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The Argentine peso, for example, recorded an inflation rate of 42.1% for May 2020, according to data from Trading Economics. The price of Bitcoin could benefit from fears of hyperinflation, massive currency volatility and devaluation shocks, the analyst says.
„In all these cases, the volume and weakness of the currency will derive mainly from the government’s need to devalue its currency. Bitcoin is framed in contrast, as it cannot be devalued by a central entity. In a regime where almost all governments have an incentive to devalue their currencies, few monetary systems would benefit as much as Bitcoin. Never before has there been such a need for an open-source competitor for fiduciary currencies.