US dollar depreciation – investing in bitcoin and gold

One scenario for the wider adoption of cryptocurrencies is the collapse of traditional money. According toformer head of Morgan Stanley Asia Stephen Roach,in 2021, the US dollar could depreciate by a third. This will happen due to a sharp reduction in household savings and an increase in public debt against the background of the successful recovery from the crisis of the main US trading partners, writes RBC Crypto.

“Currencies strike a balance between domesticthe economic basis of the country and external perceptions of its strength or weakness. In the US, this balance is changing rapidly, so the collapse of the dollar is possible in the near future. ", Roach noted.

He recalled that from January to April the indexThe dollar increased by 7% as investors around the world invested in American currency to protect their savings during the crisis caused by the spread of Covid-19.

The dollar is now trading 33% above its 2011 lows, according to estimates from the Bank for International Settlements (BIS). However, next year, taking into account inflation, the USD could fall by 35%, Roach believes.

US partners against the dollar

According to BIS, the United States' largest partners areChina, European Union, Mexico, Canada and Japan. The value of the currencies of these countries determines the dollar exchange rate on international markets by 72%. This means that to weaken it they must strengthen, which is quite possible.

“Exchange rate shifts are a result of comparing the U.S. with Europe, China, and so on. The forecast of a 35% decline in the value of the dollar is based on a comparison of America with its main trading partners.", the economist explained.

He argues that Beijing is refocusing ondomestic consumption, which will lead to the strengthening of the yuan, even despite the risk of a continued trade war with the United States. Based on trade volumes, the euro now looks 15% undervalued from its peak in April 2008, Roach added.

Currencies of Canada and Mexico will strengthen against the backgroundrestoration of economic activity and oil prices. There is no need to talk about the growth of the yen, but four currencies will be enough to influence the weakening of the dollar, said the former head of Morgan Stanley Asia.

There is one but

Head of Analysis at AMarketsArtyom Deev questioned the likelihood that the currencies of major US trading partners will rise in price in the coming year. It is not a fact that these countries will be able to avoid the deep crisis in which the entire world economy is now.

Germany's economy is contracting at a record pace. China during the pandemic has lost 10% of GDP and will catch up with losses within 2-3 years, Deev said. Canada and Mexico are heavily dependent on US exports, and may also decline. The second wave of the pandemic is increasingly being forecasted, which means the world economy may contract even more than now (including the indicated American partners).

“In a situation of global recession, everyone can fallassets, including cryptocurrencies (as was the case between February and April of the current year). It’s premature to talk about investing in Bitcoin as a “protective harbor”, says Deev.

The collapse of the dollar: will it or not?

From July 1, anti-crisis payments in the United States will stop.and student loan and mortgage financial obligations will resume on October 1st. That's why Roach predicts a record collapse in consumer savings by early 2021.

“During the crisis in 2008, domestic savings fell for the first time in the United States—by 1.8% of national income. Next year there will be a sharper plunge into the negative zone - by 5-10%.", says the economist.

This, coupled with record budget deficits,which reached $26 trillion last week, will make investments in US assets risky and force investors to look for alternatives. According to Roach, the result will be a collapse of the US dollar and stagflation—accelerating inflation coupled with weak economic growth.

“I’ve been hearing about the expected collapse of the dollar since 2001., but for 19 years the dollar has remained a safe haven and the US has prospered. According to the latest data, the US debt is $26.1 trillion, the European Union - $14.2 trillion, Japan - $13.5 trillion. All world powers have large debts, but today they are only talking about the United States.”, said Alpari IAC analyst Vladislav Antonov.

He advised holding funds in different currencies(euro, dollar, yen and bitcoin). Gold is a haven from inflation, so 10% of the portfolio should be precious metal, the analyst said. He added that investments in cryptocurrency cannot exclude high risks, but we can say for sure that it needs to be kept in a portfolio.

Is it worth buying cryptocurrencies and how much?

Head of the Treasury of SDM Bank Eduard Lushinexplained that cryptocurrencies found their user among countries and companies that are threatened by sanctions. The new type of assets plays the role of a tool to bypass the dollar settlement system and hide the traces of transactions with sanctions structures.

“To a large extent, cryptocurrencies depend ontrade wars, sanctions. China plays a significant role, accumulating most of the mining capacity. Cryptocurrencies are an instrument with a huge risk; in an investment portfolio, such instruments will most likely be in the section of alternative investments, and their share should not exceed 10% of the total portfolio volume"“Lushin noted.

The cost of cryptocurrencies will depend not so muchfrom the fall or inflation of the dollar, how much from further prospects for the development of the digital money market itself, says Roman Lavnik, Ph.D., managing partner of Lavnik & Partners.

“There is currently no opportunityconsider cryptocurrencies as a full-fledged financial asset, since the legal status of the latter in most countries of the world has not yet been regulated. Currently, cryptocurrencies are showing an obvious upward trend in value, which is associated with a general increase in digital literacy of the population, the transition of many financial transactions online, the development of online businesses and remote work. So the high value of the cryptocurrency will remain, but I would not rush to expect any colossal increase in its price.”, Lavnik noted.

He advised not to rush into investing incryptocurrency, given the uncertainty of its legal status and transactions with it, especially in Russia. In a crisis situation, the value and demand for other, more traditional (from a legal point of view) assets, for example, gold and shares of gold miners, will increase.

“As for cryptocurrencies, since they are notare government means of payment, any country at any time can limit transactions with cryptocurrencies or completely ban them, which creates additional risks for cryptocurrency holders. As one of the areas within the framework of diversifying your investment portfolio - why not. But I wouldn’t recommend considering investing in cryptocurrency as the main tool in your portfolio.”, the expert noted.

Dollar collapse predicted over the pasttwenty years, but so far this has not happened. Roach’s arguments are not conclusive, as the financial crisis could affect US trading partners. However, cryptocurrencies remain a promising asset that will develop in the coming years. Therefore, experts advise keeping part of their portfolio in them.

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