Zinger Key Points
- Even if DOGE succeeds in cutting fiscal spending, Bernstein argues that the U.S. will still need Bitcoin as a hedge.
- Rising inflation concerns and U.S. trade policies are contributing to market uncertainty, dragging down Bitcoin and risk assets.
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Asset manager Bernstein reports that the market remains pessimistic about the Department of Government Efficiency (DOGE) initiative, expressing doubts about Elon Musk‘s ability to implement significant changes effectively.
“The market remains pessimistic on the DOGE hype & believes Elon will struggle to execute anything meaningful,” the report, released on Monday stated.
What Happened: The report explored the potential for DOGE to cut government fiscal spending, which is part of the Donald Trump administration's attempt to control inflation, along with higher energy production.
While acknowledging the administration’s intention to explore crypto in governance, the report doesn’t see DOGE having a material impact.
The research firm does believe that even if DOGE were to become successful, it would not change their stance, noting that even with fiscal deficit reduction, "the U.S still would be left with a substantial debt burden at $36 trillion today & U.S will still be a net borrower.”
The report states that Bitcoin BTC/USD and the broader market tend to reflect risk-on sentiment in the near term.
Tariffs are expected to drive a stronger dollar, higher inflation and reduced prospects of rate cuts in the short term, would would mean “lower global liquidity for risk-on assets,” Bernstein stated.
Also Read: Bitcoin, Ethereum, XRP Dip Leaves Crypto Industry Unfazed: ‘We’re Going A Marathon,’ Expert Says
They believe that since crypto is one of the few markets that trades on weekends it is the sole barometer of risk.
While the market has sold-off, Bernstein expects Bitcoin to trade on its own fundamentals after it has absorbed the first risk-on shock.
The report highlights the $5.3 billion that flowed into Bitcoin ETFs in January, with their expectation of 70 billion flowing into ETF's annually, the continuing purchases of Bitcoin by MicroStrategy MSTR (2.5 billion this year) and also how the U.S. government aims to establish Bitcoin as a national reserve.
Bernstein also explored the role of stablecoins in the US treasury, noting that, with a valuation of $200 billion, they are proving to be a large demand source as collateral and expects this to grow substantially over the next 5 years.
The US government wants the digital dollar to succeed as the dominant currency on the digital finance economy built on the blockchain.
Regarding DOGE and blockchain, they expect the DOGE program to leverage a public blockchain to account for public spending.
This would bring about transparency, efficiency and a public score on the impact of Dogecoin.
Bernstein also expects foreign governments to increase their allocation to gold as a buffer against economic instability and geopolitical financial wars.
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