How central bank’s pledge to buy more bonds benefits Bitcoin

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Panic has been visible across financial markets and global banks for a while now, with central banks across the world escalating attempts to tackle this by promising to purchase more bonds. However, such Yield Curve Regulation is expected to have far-reaching consequences for the price of Bitcoin. While integrating inflation perceptions and credit issues, it also controls the market’s ability to convey free-market pricing.

Ergo, market investors can look for other ways to hedge risk and to book higher returns relative to other asset classes.

 

Based on Bitcoin’s risk-adjusted return chart from Willy Woo, BTC’s risk-adjusted returns are higher than other assets, including Gold, U.S. Stocks, U.S. Real Estate, Bonds, and Emerging Currencies. Once central banks pursue a strategy of managing borrowing costs, open market participants are free to hedge their views on risk-adjusted borrowing costs.

Bitcoin is a lucrative risk hedge choice for retailers in the current macroeconomic setting. The other choice for insurers is the default insurance market, which does not do well in terms of RoI and risk-adjusted returns. Thus, it can be inferred that investment options for hedge risk are restricted for retail traders in the U.S., as the majority of options such as CDS sovereign markets are limited to large institutions.

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Bitcoin is the only other way to give higher returns. By extension, Bitcoin becomes a safe haven, a protection against inflation, and a buffer against sovereign credit. According to famous Bitcoin analyst Greg Foss and his Fulcrum Index, an index that measures the total value of CDS Insurance on a basket of G-20 sovereign nations multiplied by their respective financed and unfunded bonds, the fair value of one bitcoin is now between $1,10,000 and $1,60,000 at a time when the crypto price is below $50,000.

Source: Coinstats

Despite trading well below the estimated fair price based on the Fulcrum Index, there is potential for vertical price growth due to factors that could cause demand. YCC is expected to increase Bitcoin’s price by further emphasising Bitcoin as the perfect option for a retail investor looking to hedge danger. Retail traders’ contributions to Bitcoin’s demand have fallen on top exchanges, however they may go through a revival and help Bitcoin’s price rally again.

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