A weak US dollar is coinciding with low US investment rates, massive stimuli and surging manufacturing to raise inflation fears. Photo: AFP

Long bitcoin, short the dollar.

That, in a nutshell, was the advice Pantera Capital CEO Dan Morehead gave to investors in a July 29 letter warning about the unprecedented amount of money being printed by the US government to address the financial crisis caused by the Covid-19 pandemic.

“The United States printed more money in June than in the first two centuries after its founding,” Morehead wrote. “Last month the US budget deficit – $864 billion – was larger than the total debt incurred from 1776 through the end of 1979.”

The American crypto bull said investing in bitcoin is the best way forward in the current crisis. He went on to contrast the impact of money printing in recent months with how the equivalent amount of currency had performed historically.

Morehead wrote, “With that first trillion [US dollars printed] we defeated British imperialists, bought Alaska and the Louisiana Purchase, defeated fascism, ended the Great Depression, built the Interstate Highway System, and went to the Moon.”

Morehead pointed to inflation, which he expects will result from excess money printing, as the chief reason one should “get out of paper money and into bitcoin,” adding that “there is no need for inflation-adjusted numbers [with Bitcoin] because there is no inflation/hyper-inflation.”

Inflation or deflation?

Morehead belief that excessive money printing will cause inflation – some say even hyperinflation – is widely shared, but many experts predict consumer prices will actually go into a period of deflation, which is what happened in Australia this week. ABC News reported that consumer prices in the country actually dropped 1.9% in June. It’s a record for deflation since the Korean War, Cointelegraph reported.

Other experts say the inflation many have anticipated is actually happening in asset prices – equities, bitcoin, gold and silver have been surging – rather than consumer prices. 

The impact of money printing, it seems, has also been offset by a lack of aggregate demand due to the pandemic.

The latest projections from Federal Reserve policymakers show inflation will stay below the central bank’s 2% target over the next two years, CNBC reported.

“At this stage, even with the Fed doing as much as it can, it’s still not leading to an enormous increase in demand,” Olivier Blanchard, a senior fellow at the Peterson Institute for International Economics.

He added the $1,200 stimulus checks from the US federal government were not big enough to stoke inflation.

“The checks, while they helped, they didn’t lead to a boom in demand,” Blanchard said.

Best strategy?

Pantera Capital says there is a straightforward investment strategy for riding out the pandemic: “Stay long crypto until schools/daycare open. Until then the economy won’t function and money will be continuously printed.”