Bitcoin price has held steady in the past few days as investors assess the impact of last Friday’s halving event that has now slashed the block rewards provided to miners. The mild price action is because the halving was already expected since it happens every four years.
US passed the REPO Act
Therefore, traders are now looking for the next catalyst that could push the price of Bitcoin higher in the coming months. The next important thing that will move Bitcoin and its ETFs like the iShare Bitcoin Trust (IBIT), Ark 21Shares Bitcoin (ARKB), and the VanEck Bitcoin Trust (HODL) is the Federal Reserve.
Most analysts believe that the Federal Reserve will maintain a hawkish view since inflation remains stubbornly high amid the rising geopolitical tensions. Crude oil, a key driver of inflation, has continued rising and now sits at its highest point in months.
Another likely catalyst for these ETFs and gold is the recently passed REPO Act, which is set to sell sovereign assets of Russians to fund the war in Ukraine. On paper, the idea looks like a good one since Russia will help to cover the cost for its destruction in Ukraine.
REPO Act’s unintended consequences
In practice, however, the REPO Act will likely have unintended consequences for the US dollar and other assets like gold. By seizing Russian assets, the US may find it difficult to sell Treasuries to foreign countries. The biggest holders of this debt are countries like Japan, China, and Saudi Arabia.
Most of these countries are already reducing their exposure to US Treasuries. China has slashed its exposure to about $750 billion, down from over $1.3 trillion a few years ago. Its treasuries are the lowest they have been on over 14 years.
This trend is happening at a time when US debt is exploding. The US has over $34.6 trillion in debt, a figure that is growing by $1 trillion per 100 days. As a result, there is a risk that the US will go through a debt crisis in the coming years.
The REPO Act will likely reduce the appetite of foreign individuals and countries from buying these Treasuries since the US can seize them. Consider the following statement by Christopher Waldell who wrote this in the New York Times:
“The very act of seizing Russian assets would pose dangers to the U.S. economy, because other countries, not just Russia, would view it as an act of brigandage. This could weaken the dollar’s status as the main global reserve currency.”
The initial beneficiary of the REPO Act is gold, which is often seen as the best alternative to the US dollar. Indeed, the price of gold has surged to a record high and analysts believe that the trend may continue in the coming months.
Some foreign investors and countries could move to Bitcoin and its ETFs. While Bitcoin price has pulled back recently, it has a long track record of beating gold. There are also signs that institutional investors are buying these ETFs.
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