Published: March 23rd, 2020
The coronavirus pandemic has come with unprecedented ramifications. To cope, governments have undertaken several monetary and fiscal adjustments. Aside from massive stock sell-offs, nations have acted not only to increase lending but also to heighten spending to help industries stay afloat. This increased splurge is proving beneficial to the world’s first cryptocurrency.
With the world scrapping for cash to bailout budgets and stem various economies from sliding into recession, the heightened demand for hard cash is making Bitcoin more bullish.
Of late, investors have changed their perception of Bitcoin; it is now a haven asset. This position means that if the witnessed inflation in the global economy continues unabated, Bitcoin may replace the dollar as the reserve currency a lot sooner than anticipated.
Unlike your average asset, Bitcoin fits into many classes. It can pass for an ordinary currency like the dollar because it easily facilitates the transfer of value. Experts in the money markets have even predicted the coin replacing not only fiat but precious metals as well.
That prediction notwithstanding, Bitcoin shares peculiar characteristics with precious metals such as gold. You cannot print Bitcoin at whim as is currently the case with fiat. Governments trying to downplay the impacts of the deadly coronavirus have instituted a raft of monetary and fiscal policy measures that include increasing the supply of hard cash circulating in their economies.
Bitcoin, on the other hand, has a supply limit just as precious metals do. For this reason, the coin has a deflationary character. Alex Krüger who is a renowned economist and doubles as cryptocurrency enthusiast and trader says that it is these characteristics of Bitcoin highlighted above that are giving the cryptocurrency a wildly bullish case now.
Krüger says that in the face of the ever-increasing government spending, Bitcoin maximalists realize that they have been wrong all along. The economist asserts that Bitcoin neither acted like a haven nor a store of value. Instead, it collapsed by over 60%. He refutes the claims of market analysts who insist that the coin is doing well.
According to Krüger, no other asset except a few other cryptocurrencies and some stocks, have dropped more than Bitcoin has. He castigates the people that are criticizing the economic aids and package that governments are currently fashioning to deal with the effects of the coronavirus pandemic. He thinks that such stances are ironic since such measures make the exchange rate of Bitcoin bullish both shortly and in the long-term.
Krüger thinks that the best-case scenario for the Bitcoin price is a situation where governments lose control and exceed their spending limits, especially now that the global economy is hurt.
During the last recession, gold emulated equities and most cryptocurrencies. The precious metal lost ground as did Bitcoin because investors sold everything they had in preparation for the worst.
After the drastic decline, however gold rose to record highs. The immigration to gold positions was due to the movement of capital by investors into assets that they considered slightly safe. Also, the investors’ sentiments were buoyed by the value of precious metals as opposed to the value of the declining dollar especially in the face of continued inflation.
The economy is seeing a similar situation now. So, if this prediction is even half true, Bitcoin is poised to do even better.
Most local and national governments have signaled their intentions to increase spending on medical aid and public health. By Friday, March 20, twelve states in the U.S. had enacted supplemental appropriations sanctioning the transfer of funds to help health agencies cope with the effects of the pandemic.
Besides, some states are considering delayed tax payments or outright tax breaks as well as expanding unemployment insurance to cover all affected workers.
Aside from the states in the U.S. and the federal government, similar efforts are being implemented in Australia, Japan, Sweden, France, Spain, the UK, and Italy.
While ensuring that health agencies have enough recourses to fight the pandemic is a wise move, the measures will most likely be dwarfed by the imminent recession. The comprehensive social distancing measures advocated for by medical experts already is affecting customer spending. Workers’ wages have also dipped as a result and the world may soon experience a plunge in income tax and sales revenues.
However, increased unemployment is likely to encourage even more government spending on unemployment insurance. This situation will increase the number of individuals that are eligible for medical aid and other related insurance packages.
Lower taxes, on the other hand, does not favor the desire of governments to increase spending on medical aid and other social services. The overall situation, as such, becomes an egg-and-chicken dilemma, which will fuel inflation and help Bitcoin attain better rates in the long-term.
Bitcoin shares an attribute with many other assets; its value is pegged on the dollar. When the value of the dollar slides compared to other assets, the value of Bitcoin jumps. With the continued inflation that the global economy has slid into, the value of Bitcoin seems to have a bright future.
Market analysts now predict that this economic situation may present Bitcoin with the biggest opportunity since its release. According to a blog article by BitMEX, the supremacy of the dollar rests much on a defined economic regime with a predefined anchor.
If the current inflation usurps the economic orders and creates loose markets where not a single currency acts as a benchmark, then the dollar may soon be replaced by Bitcoin.
The coronavirus pandemic has thrown the global economy into a state of pandemonium. To contain its effects, nations have gone on a spending overdrive. While economists say that most of these measures pale in comparison and may not contain the real effects that are yet to be felt, the created frenzy is compellingly arguing the case of Bitcoin. If the rate of inflation continues unabated, Bitcoin may gain an admirable glow.