The system of public (fiat) money is under threat of disappearance, and in the next 10 years digital assets like cryptocurrencies can replace it, warns Deutsche Bank.
Doubts about the reliability of the usual government money and the permanent threat of high inflation open up excellent prospects for cryptocurrencies, experts from Deutsche Bank write. In their Imagine 2030 report, they propose 24 ideas for the next 10 years.
What Will Happen To Cryptocurrency If Stock Market Crashes?
“The forces that previously kept the fiat money system (money unsecured with gold and other precious metals, regardless of the cost of the material used to make them) afloat, now look fragile, and in the 2020s it can fall apart, ”you say to the document. “In this scenario, demand for alternative assets like gold and cryptocurrencies will increase.”
According to Deutsche experts, the current situation is similar to the late 1970s, when the gold-backed Bretton Woods system collapsed. This event triggered a sharp rise in inflation and a surge in gold prices.
The correlation between cryptocurrency markets and stock markets is getting smaller and smaller
Renowned expert on geopolitical and financial cycles Charles Nenner says that once the S&P 500 closes the session below 3230 points, it will be safe to say that the US stock market has formed a top. After that, the decline in stock indices will begin to gain momentum and may turn into a real collapse. However, investors should be aware that bull markets do not reverse overnight, so multidirectional trading is possible for a while. People always think that a decline in the market represents a good buying opportunity, but this time the downward movement will be very strong.
There is a significant difference between small investors and insiders: the former are upset if they missed the market growth by an additional 2-3%, while the latter are afraid of losing 40% if it collapses. In this case, Charles Nenner advises to sell, and claims that we will see the same 40% collapse.
Due to recession or deflation, the market decline will continue for most of the year. The expert advises to bet on the deflationary crisis, which will provoke further and strong rate cuts.
About gold, Nenner says: “As for gold, it will rise in price to $ 2,500 per ounce in the coming years. My analysis of the cycles suggests that precious metals will rise in price, but the way up will not be direct. Gold may soar up to $ 1,890, and then collapse to $ 1470. Therefore, I advise you to buy and not worry, but just wait three years to sell at $ 2500. If the current financial system collapses and we have to return to the gold standard, then gold may rise to $ 60,000. ”
Future of fiat currency depends on digital currency
In the past 40 years, cheap and plentiful labor from China has been the main force that has kept inflation at bay. However, in the future, due to demographic factors, governments will be more focused on fiscal policy rather than aggressive monetary stimulus.
“As soon as the cost of labor begins to rise noticeably, it will become much more difficult for central banks,” experts at Deutsche Bank note.
Over time, inflation will become an increasingly serious problem, which will increase doubts about the reliability of fiat money and generate strong demand for alternative currencies.
“Will fiat money survive a period of high inflation and record debt? This is a multi-trillion dollar question, the answer to which depends on the future of bitcoin and other digital currencies, ”the bank’s experts conclude.
For the first three quarters of 2020, Bitcoin traded on average around the $ 10,000 mark. In March, against the backdrop of the spread of the coronavirus, quotations dropped to almost 5,000, but then the price recovered. A sharp rise began in the second half of October, when quotations doubled in two months to 20,000. In another month, the price doubled again – to 40 thousand. The historical maximum – 41.96 thousand dollars – the cost of bitcoin reached January 8, data from Coindesk show. One of the main reasons for the popularity of Bitcoin may be the desire of investors to insure at least part of their assets against inflation.
The future of Bitcoin
The future of Bitcoin is heavily dependent on regulators and big business. The growth in quotes in 2020 was at least in part due to the decisions of large institutional investors to invest in this cryptocurrency.
In addition, large businesses are gradually adding bitcoin to their services. Earlier, payment services Square and PayPal, with a combined audience of about 300 million people, added the ability to buy cryptocurrencies to their applications.
Against the backdrop of the proliferation of cryptocurrencies, central banks of many countries have begun to study the launch of digital currencies. However, these currencies are denominated in the currencies of the respective countries. For example, a digital version of the yuan has been launched in China, and the launch of a digital ruble is being discussed in Russia.
Cryptocurrencies, being private means of payment, can be used as an investment tool or store of value. In this regard, Bitcoin can compete with gold. Analysts at JPMorgan Bank noted in early January that, in their opinion, bitcoin has already begun to compete with gold as an asset to hedge savings against inflation. As an example of such competition, they cited deals in which investors withdrew $ 7 billion from gold and at the same time invested $ 3 billion in the Grayscale Bitcoin Trust cryptocurrency investment fund.
According to analysts, in order for the capitalization of bitcoin to equal the value of gold in private hands in bullion, coins and traded funds, its quotes must rise to $ 146,000.