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How Does Printing USD Affect Cryptocurrency?

Written by: Bor Kračun Pižmoht, 28. 4. 2021
The United States’ plan to boost the economy relies heavily on printing USD to help it endure the current world crisis. While this seems to be working and the U. S. economy is doing surprisingly well, the question we ask ourselves is if such a sudden increase of supply of the dollar can – or already has – influenced the market cap of cryptocurrency.
Correlation between Bitcoin and USD debt
Bitcoin – A Deflationary Currency

Today, the most popular cryptocurrency in the world is Bitcoin – and with good reason. It was the first crypto on the market and ever since its beginning has remained the biggest. Therefore, what applies to Bitcoin often applies to most altcoins.


Comparing it to a fiat currency like USD, one of the key differences is that Bitcoin has a limited supply of 21 million coins, making it a deflationary currency, as it is impossible to create more.

Bitcoin supply chart

Essentially, this makes Bitcoin immune to inflation, as even when with time the purchasing power of fiat currency decreases, Bitcoin’s scarcity will make it hold value.


Of course, not all crypto is the same, and there are also cryptocurrencies that are inflationary, meaning that their supply is unlimited, such as Ethereum and Dogecoin. The value of these currencies is in theory determined only by the market.


Lately, Bitcoin has seen a massive surge in popularity and with it, in price. It recently broke the $60.000 mark and is speculated to continue rising. While there are many reasons for this rise in value, the one that is often overlooked is the current global situation that we’re all too well aware of – the pandemic (and the things it brings with it).

“The Money Printer” and National Debt

As the COVID-19 pandemic demands more and more money being invested into medical care, stimulus checks and relief packages, the U. S. Treasury is printing more and more notes. A worry many people have is that this can only result in inflation. Expert opinions on this are divided, some saying that they can safely continue to make more, others warning of impending inflation after the pandemic comes to an end.


A factor that is currently helping negate inflation of USD is the velocity of money. What this means is simply how much and how often money is exchanged. Seeing as in times of emergency (for example, a global pandemic), people tend to save more and spend less, it isn’t unusual to see that the velocity of USD is lower than usual, contributing to a more manageable rate of inflation.

Another concerning fact is the rising U. S. National Debt, reaching unimaginably high numbers. Both facts are driving people to look for an alternative way to store their wealth and seeing as the world of cryptocurrency is at this moment quite unaffected, it’s becoming an increasingly common choice.
Does creating a bigger supply of USD influence crypto market caps?
Currently, the effect is minimal as USD is also projected to recover from its 2020 fall this year. People are, however, worried about what is to come and some statistics back this concern. For example, the five-year breakeven inflation rate (what market participants expect inflation to be in the next 5 years, on average) has been above the 2% line for the entirety of 2021.
5 year breakeven inflation rate chart

While inflation is a valid concern, a halt in the economy is even more damaging and the economy as it is right now, supercharged by stimulus, is not an indicator of things to come.


Then what is driving the price of crypto right now? The biggest driving factor for crypto prices is exposure and mainstream acceptance, especially if we look at Bitcoin. Its bull run this year is a result of mainstream exposure bringing in new traders, corporations taking interest in cryptocurrencies, adoption on a larger scale and most recently, Coinbase’s market debut.


Compared to these factors, USD having less purchasing power over crypto compared to a few years ago is not affecting its price as drastically as one might believe.

Cryptocurrency as a hedge against inflation

Crypto enthusiasts often argue Bitcoin (and other crypto) as a hedge against inflation. Since the speed of crypto mining is controlled, other currency will depreciate compared to it, making the price rise over time.


This idea of limiting supply to control value is not limited to cryptocurrency, as it is shared by investors in general. It can be observed in practice by looking at some countries over longer periods of time, where the association between money supply and inflation is noticeable.


The U. S. Dollar’s supply being artificially increased to help the nation is currently not having a massive effect on cryptocurrency market caps directly, but rather indirectly, as people are growing concerned of inflation risk and are looking for other “safe havens” for their dollars. Traditionally, this meant precious metals and non-volatile stocks, but now more than ever, cryptocurrency is becoming a recognized option. This, coupled with more widespread adoption and corporation investments, is creating more interest in buying and using cryptocurrency, consequently making its price go up.

About the author:

Bor Kračun Pižmoht


Bor Kračun Pižmoht is a researcher of all things crypto. He has been following the development of cryptocurrency for many years now, even dabbling in some obscure ones along the way (What even is Garlicoin?) and has begun building a small portfolio of his own. Currently, he has shifted his focus to the mainstream giants of the crypto world.