Opportunity Economy: Potential Impact of New Policies on the Crypto Market

This week, the market enters a quiet period before the Jackson Hole meeting, with attention focused on Powell's interpretation of the latest employment and inflation data, as well as guidance on future monetary policy. This will become an important reference for the September interest rate decision.

It is worth noting that a Democratic presidential candidate recently announced the first economic policy framework - "Opportunity Economy". This far-left leaning proposal aims to reduce the cost of living for the American people through government intervention in four areas: housing, healthcare, food and daily necessities, and childcare. If implemented, it could drive the crypto market to replicate the upward trend seen in 2021, but it may also trigger a resurgence of inflation in the United States.

$1.7 trillion subsidy plan

With the candidate officially receiving the nomination, their momentum has clearly increased. Polling data once surpassed that of their opponent, demonstrating strong momentum. Although the polling results may have some subjectivity, they also reflect the considerable strength of their campaign team after consolidating internal resources.

The candidate has previously faced scrutiny due to a lack of clear economic policy preferences. However, the "Reducing Costs for American Families Agenda" released on August 16 has sparked considerable controversy. This far-left economic policy document proposes to lower the cost of living for the public in areas such as housing, healthcare, food essentials, and childcare through government intervention.

In terms of housing, it mainly includes three directions:

1. Call for the construction of 3 million new housing units within four years, stimulating housing construction through tax incentives, the establishment of innovation funds, and other measures.
2. Crack down on businesses and major landlords to reduce housing rents.
3. Provide a $25,000 down payment subsidy for first-time homebuyers, significantly expanding the number of subsidies available.

Medical aspects include:

1. Set a cap on out-of-pocket expenses for insulin and prescription drugs.
2. Accelerate the negotiation of prescription drugs by medical insurance.
3. Enhance competition and improve transparency in the healthcare industry.

In terms of food and daily necessities:

1. Promote the ban on price fraud for food and grocery items.
2. Establish rules to limit large companies from obtaining excessive profits.
3. Grant new powers to regulatory agencies to investigate and penalize violators.

Parenting aspects include:

1. Tax reduction for middle-class families with children.
2. Provide tax credits for newborn families.
3. Tax deductions for dual-income families and health insurance purchases.

These proposals promise to start implementation within the first 100 days of taking office. However, the controversy mainly revolves around housing and daily necessities policies, as well as the overall budget. Opponents argue that radical housing policies will increase government debt, and the daily necessities policies contradict market regulations.

Non-profit organizations estimate that the plan will increase the government deficit by $1.7-2 trillion over the next 10 years. This could exacerbate the debt crisis, drive up inflation, and intensify social conflicts due to adjustments in the tax structure. Following the announcement of the bill, there was significant volatility in safe-haven assets such as the dollar index and gold.

Impact on the crypto market

Analyze the impact of the bill on the crypto market; it may be beneficial in the short term, but there are risks in the long term.

The bill mainly benefits the middle class, which accounts for more than 50% of the U.S. population. Although the effectiveness of government intervention has diminishing returns, the short-term impact remains significant. If the plan is implemented, the cost of living for middle-class families in the U.S. will decrease significantly, and disposable income will increase. This creates conditions for the rise of risk assets, especially high EPS technology assets.

This scenario played out in 2021. At that time, the $1.9 trillion COVID relief package boosted disposable income for American households, leading to a surge in the crypto market represented by Bitcoin. However, the ensuing inflationary pressures forced the Federal Reserve to carry out monetary tightening for over two years, resulting in a significant pullback in risk assets.

Therefore, if similar-scale economic policies are implemented again, it may benefit encryption assets in the short term. However, in the medium to long term, caution is needed regarding the monetary policy risks brought about by the potential return of inflation. Of course, this depends on whether the candidate can be successfully elected and effectively implement the policies. Future developments should continue to be monitored.