Tuesday, June 25, 2019

Donald Trump Helped Bitcoin Reached Its Peak In 2017, Goldman Sachs Says

Scott Weatherill, a former trader at Goldman Sachs in a blog post, stated that Donald Trump, the U.S. President may have indirectly helped to drive the Bitcoin bubble of 2017. According to Weatherill, more money circulating in the economy can spill over into the cryptocurrency market since people are short of what to buy.

More Money in Circulation Influences Bitcoin’s Price

In Scott Weatherill’s opinion, more money circulating in an economy can have an influence on assets in the market including cryptocurrencies. He noted that when the financial crisis occurred in 2008 to 2009, there was a quantitative easing (QE). The latter is when central banks buy securities or assets from the private sector to lower the interest rate. As such this helps to push more cash into the economy.

An instance which Weatherill gave is the case of the QE3 (third round of quantitative easing from the US Federal Reserve) in the U.S. which was announced in September 2012. At that time, even though Bitcoin’s price was bullish, its value spiked even further to be priced around $1,000.

However, Weatherill said the hike in price might not have resulted from the QE3 given that the market capitalization at that time was $12.5 billion. Also, most traders were “coders, futurists, and well-informed venture capitalist…who could envision Bitcoin’s potential.”

Cryptocurrency Winter of Late 2014 Coincides With Less Liquidity

The trader also outlined that when the first cryptocurrency winter occurred around late 2014 to 2015, there was less cash in circulation. This time around, it could not be attributed as a mere coincidence as the case of 2012. Asides cryptocurrencies, the stock market was also down.

In the case of Donald Trump, Weatherill said the president in the first two months of his first term had begun draining the Treasury general account (TGA). TGA is a government account that is held with the central bank and the higher the amount it contains, the lower the cash in circulation. Therefore, a lesser amount held in the account signifies more cash flows in the economy.

More Money Pumped into the Economy Influences Bitcoin’s Price

Here, the account which held about $402 billion as of January 2015 declined to $23 billion by March 2017. Therefore, about $350 billion was pumped into the U.S economy. The trader said while this drain by the President may have been in a bid to improve the stock market prices, it also influenced virtual assets which led to Bitcoin’s all-time high of $20,000.

The writer concludes that liquidity, the availability of cash can have a positive impact on Bitcoin’s price. According to him, “So is liquidity important for Bitcoin? On a macro trend level, the answer appears to be yes… when times are good, and you are sitting on solid paper gains in the traditional markets; you are probably more comfortable risking capital on crypto.”

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