Growing US Deficits Could Boost Bitcoin, Says Investment Guru — But Only Under One Condition

Lyn Alden, a renowned investment strategist, argues that the U.S. has entered a period of “fiscal dominance,” where government deficits are driving monetary policy — a change that could be bullish for Bitcoin BTC/USD.

In an appearance on the ‘Less Noise More Signal’ podcast, Alden outlined her views on the current economic environment, the role of Bitcoin, and the challenges facing traditional financial systems.

She argues this shift from the previous era of monetary dominance began around 2016-2017 and is primarily driven by demographic changes as the large baby boomer generation enters retirement.

Its implications for monetary policy are profound since raising interest rates can paradoxically worsen inflation by increasing the government’s debt burden, Alden notes.

“When they [Federal Reserve] raise rates, it does slow down bank lending but it actually blows out the deficit by an even bigger number than it slows down bank lending,” the strategist points out.

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Alden sees Bitcoin as a potential hedge against monetary debasement, but emphasizes that its success depends on continued adoption and utility, in part as a “store of value.”

Regarding government attitudes towards cryptocurrencies, Alden emphasizes that “governments are not monoliths,” pointing out the diversity of opinions within political structures. This diversity, she believes, is crucial in preventing overly restrictive policies.

Alden advocates for education as a key strategy in fostering a balanced approach to cryptocurrency regulation.

Alden also discussed the importance of liquidity in asset markets. In a recent study, she found Bitcoin to be highly correlated with global liquidity measures, moving in the same direction 83% of the time over 12-month periods, higher than any other asset class examined.

However, Alden cautions against oversimplification. She notes that in the 17% of cases where Bitcoin doesn’t follow liquidity trends, other factors, such as valuation, come into play.

She concluded that new technologies like Bitcoin offer potential alternatives and hedges against traditional financial system risks.

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