The COVID-19 pandemic has ravaged the economies of countries all around the world and is showing no signs of stopping. The overwhelming response from global governments has been to place their countries under full or partial lockdowns. This has arguably saved many lives, but the economic fallout has been savage. The United States alone is on track to see a record 30% rate of unemployment and an unprecedented 30% drop in gross domestic product. China, the European Union, Japan and the United Kingdom aren’t faring that much better.
In such uncertain times, investors are naturally nervous. After the massive crash in March, and amid rising joblessness and fear, the stock market is back to registering new highs — in the middle of a pandemic. The American Main Street and Wall Street appear to be living in parallel universes, suggesting that the latest recovery could be little more than a dangerous bubble.
When that massive March sell-off spilled over to crypto and Bitcoin (BTC) subsequently descended to as low as $3,600, it shook the faith of those touting Bitcoin’s safe haven narrative. However, in the weeks since then, Bitcoin has recovered faster than any other asset. If the global macro situation worsens, we may see some more downward price pressure on Bitcoin in the short-term. Meanwhile, the long-term outlook for BTC could not be more bullish. Here’s why the worst crisis in a century is setting the stage for Bitcoin.
Infinite quantitative easing
Along with the lockdowns, another measure that has been taken especially by wealthier nations is to throw money at the coronavirus problem. More than $8 trillion has been spent globally to counter the effects — and we’re still in the throes of the crisis. It’s becoming clear that $8 trillion is not even enough. So, how much will be enough, and how sustainable will that be?
When faced with plummeting GDPs, record unemployment and many businesses forced to close their doors forever, unlimited quantitative easing places even the wealthiest nations on a dangerous footing.
The risk of major global currencies experiencing hyperinflation will increase. While it’s unlikely that the U.S. or the U.K. will suffer the same scenarios of developing countries like Venezuela or Argentina, ceaseless money printing will at the very least lead to currencies becoming a poor store of value as their purchasing power is eroded and holders receive negative yield in a bank.
In the current climate, most everyday people may not be thinking about investing right now as much as keeping food on the table. However, wealthy and experienced investors have begun to see Bitcoin’s potential at last. Infamous macro investor Paul Tudor Jones recently added Bitcoin to his public portfolio, calling it the “fastest horse.” He also explained that he was buying it as a hedge for the inflation he sees coming from all the money printing. That sends out a powerful message.
Apart from the brief correlation with the stock market earlier this year, Bitcoin is largely uncorrelated to other markets. Risk managers understand the importance of diversifying an investment portfolio particularly in times like these, and many investors will likely follow Tudor Jones’ lead.
In contrast, Bitcoin becomes more scarce
Almost as if to showcase arguably Bitcoin’s key quality, the Bitcoin halving reduced the block reward for miners, meaning that unlike fiat, its supply will go down. It’s such a stark contrast that even skeptics have to stop and think — or at least study the value of owning some Bitcoin.
The haven status of BTC would seem to be regaining ground as it aims to test the $10K barrier once again post-halving. Despite the Black Thursday event and all the volatility, it has shown impressive recovery and is still up some 35% YTD.
In fact, after this third halving and the recent rush on gold, Bitcoin as “digital gold” holds more weight now than ever. The demand for gold will cause its production to increase, yet, very soon, BTC’s inflation rate will be even “harder” than that of gold.
On top of the price, the fundamentals are looking good. The hash rate has dropped somewhat post-halving, but it’s still close to record highs. With zero stimuli or government bailouts, it has recovered all by itself.
The industry keeps on growing
Despite record unemployment, the cryptocurrency space has been growing strong with many firms, particularly exchanges, on a hiring spree, including Kraken and OKEx. The U.S.’s largest financial institution, JPMorgan, recently announced it would open bank accounts for crypto exchanges Gemini and Coinbase.
The $10-billion crypto hedge fund Renaissance Technologies has approved offering cash-settled BTC contracts from the CME Group, and Grayscale Investment Trust has recently seen a record inflow of institutional funds designated at buying Bitcoin.
More eyes are turning to Bitcoin
Not only have the smart money and institutional dollars begun to pour in but everyday people are (perhaps for the first time) questioning the value of money. It may not be something that they had contemplated before, but seeing trillions of dollars apparently created out of thin air makes them question how money is created. This lifts a veil on government practices and makes a stronger case for Bitcoin.
As Bitcoin continues to prove its worth and emerges as a must-have in investors’ portfolios, more eyes will turn to it. Many of those people furloughed at home will begin to seek more information about it and realize that they have an alternative to the current financial system. Now more than ever is the crypto community’s time to shine through the provision of high-quality educational content.
To that end, OKEx has launched a Beacon Program at the end of this month specifically tailored to the hard-hit European region. This will be a chance for people affected by the crisis to delve into the blockchain and crypto space. Through masterclass content and mentorship from top OKEx execs, we hope to inspire and kickstart new careers for people so that some good can come out of the crisis.
COVID-19 — for all the hardship and fatalities it has caused — may just prove to be the biggest catalyst for Bitcoin yet.