Bitcoin predicted to rise 165% to $2,000 in 2017

The price of Bitcoin could hit more than $2,000 in 2017 driven by expectations that U.S. President-elect Donald Trump may introduce economic stimulus policies, which could send inflation soaring and propel the dollar to record highs, a report from Saxo Bank claims.

Bitcoin is currently trading around $754.51, according to CoinDesk data. A handle of over $2,000 would represent 165 percent appreciation.

During his election campaign Trump has talked about an increase in fiscal spending. Saxo Bank's note said that this could increase the roughly $20 trillion of U.S. national debt and triple the current budget deficit from approximately $600 billion to $1.2-1.8 trillion, or some 6-10 percent of the country's current $18.6 trillion economy.

As a result, the economy will grow and inflation will "sky rocket", forcing the U.S. Federal Reserve to hike interest rates at a faster pace and causing the U.S. dollar "to hit the moon".

When inflation rises the Federal Reserve may raise interest rates to bring it under control. This causes the dollar to appreciate because it would be seen as an attractive currency for foreign investors.

"This creates a domino effect in emerging markets and China in particular, leading people globally to look for alternative forms of currencies and payment systems not tied to central banks that have exhausted monetary policies or crony governments that are in full financial repression mode nor transaction systems that are long overdue for a revolution," Steen Jakobsen, chief economist at Saxo Bank, wrote in a note.

Bitcoin as the largest cryptocurrency would benefit from this "chaos", he added, as emerging market countries look to move away from "being tied" to the monetary policy of the U.S. and banking system. 

Benoit Tessier | Reuters

"If the banking system as well as sovereigns such as Russia and China move to accept Bitcoin as a partial alternative to the USD and the traditional banking and payment system, then we could see Bitcoin easily triple over the next year going from the current $700 level to +$2,100
as the blockchain's decentralized system, an inability to dilute the finite supply of bitcoins as well as low to no transaction costs gains more traction and acceptance globally," Jakobsen said.

Blockchain is the underlying technology of bitcoin which records every transaction using the digital currency so that it can't be tampered with. There is also a finite supply of 21 million bitcoins. This in theory would cause price appreciation of the asset over a long period of time.

Jakobsen's comments were in his annual "Outrageous Predictions" note and the economist says that his views are not the official outlook for Saxo Bank. Instead they are an attempt to "get you to think out of the box" with the aim of "provoking conversation".

Bitcoin rise realistic

But Bitcoin advocates say that the slower appreciation of the dollar against the yuan in comparison to bitcoin against the dollar shows that the $2,000 handle is not unrealistic. The dollar has risen 3.3 percent against the yuan in the last three months while bitcoin has gone up 20.7 percent in the same time period.

Bobby Lee, chief executive at bitcoin exchange BTC China, compared the current situation of cryptocurrencies to the advent of digital cameras. He said that it is a "new asset class" with long-term potential.

"It's the advent of digital currency and with bitcoin there is bound to be more in circulation value in the coming years," Lee told CNBC by phone. The amount of bitcoin in circulation is valued at around $12.1 billion.

(News Source: http://www.cnbc.com)