Bitcoin Needs To Make an Effort to Not Waste This Crisis
While many bitcoin (BTC) hodlers hope that despite the COVID-19 pandemic and troubles in the traditional financial markets - or exactly because of them - BTC will skyrocket, it might not happen without the active involvement of the Cryptoverse itself.
"In addition to the unique properties of BTC, the industry needs strong storytelling, marketing, and user experience to enable folks to understand the reasons why it's a compelling investment opportunity—and ultimately purchase some bitcoin!" Zac Prince, Co-founder of major US-based crypto lending startup BlockFi, told Cryptonews.com.
According to him, as long as there's no better option against the US dollar, it will continue to benefit from its global reserve status.
However, "for fixed supply assets like bitcoin, large money printing efforts from fiat currencies should result in upward price moves," said Prince. "For crypto, we’ll continue to see inflows from both retail and institutional investors, which is driven by leading platforms acquiring new clients."
A recent survey showed that senior trading executives believe that larger trading companies are about to take the crypto plunge, while their preferred trading pair is BTC/USD. Also, major chat app operator Line, just sent another sign of increasing adoption, saying that 62% of its Bitmax crypto trading platform users in Japan are new to crypto.
Learn more: How Well Has Bitcoin Performed as a PR Project?
Portable "gold" and inflation
Potentially, there are more good news for both Bitcoin and the financial systems in general, as this global crisis could bring forth a fundamental shift.
"Whilst the 2008 financial crisis led to the birth of Bitcoin, this crisis could really be the one that defines not only Bitcoin but also digital assets as a whole as a way to effect real change to the financial system and democratize economies and markets so that it results in a more optimized financial system, which is hybrid (both centralized and decentralized) with the best facets of both," Hirander Misra, Chairman and CEO of financial and tech solutions provider GMEX Group, told Cryptonews.com.
According to him, both BTC and gold investors are now partially opting out of the current financial system and that way "they can ride out the economic contraction until things settle."
"Going into gold and BTC and reducing short term exposure in financial assets will also shield investors from a system that is fraught with counterparty risk given that both governments and institutions are going to be increasingly leveraged," he added, reminding that BTC is a digital asset and is more portable than gold. Even if it is fully asset-backed tokenized gold, the underlying asset still has to be in storage somewhere, Misra added.
Meanwhile, Bitcoiners are also pushing the hyperinflation narrative that supposedly should help BTC adoption.
Last week, a report from the Open Money Initiative denied that Venezuelans are using BTC as a store of value against the devaluing bolivar. It is instead being used “as a channel on the road to obtain more stable currencies such as the United States dollar, Colombian peso, Chinese yuan, and various stablecoins.”
However, should the USD devalue also, bitcoin has higher chances to become a store of value endpoint.
While the world's hyperinflation expert, Steve H. Hanke, a Professor of Applied Economics at the Johns Hopkins University, told Cryptonews.com that quantitive easing won't trigger hyperinflation, it doesn't mean that there will be no inflation at all. (However, Hanke believes that "inflation probably won't be much of a threat").
'USD may devalue in the next 12 months'
How much inflationary pressure will there be depends on the extent of money supply increase that's needed to facilitate these quantitative easing programs. In the case of the U.S., the country has a large budget deficit, and it will increase due to: a) the economic contraction as a result of the crisis, and b) the aid package.
"An increase in the budget deficit has a direct correlation with increasing inflation, which coupled with the increase in money supply, leads to inflationary pressure on two fronts," said Misra. "This will certainly cause increased inflation, however, the fundamentals of the US economy are strong enough for this not to result in hyperinflation."
However, he estimated that the USD may devalue in the next 12 months as its value "has been in large part based on sentiment, which in turn has a correlation with US balance of payments." Furthermore, US exports have become more expensive for buyers that use other currencies, while the strengthening of the dollar resulted in cheaper imports into the US.
"This will put further negative pressure on the balance of payments and hinder economic expansion in the short term as demand for US goods in the international market is curtailed." That said, the situation will start reversing if the dollar weakens, while despite the job losses and economic contraction, "the US economy will start to expand again once the epidemic is controlled as it has been in China," Misra said.
Turning to Europe now, Misra also argued that inflationary pressure will be felt there too - pandemic-caused issues across the Eurozone have made quantitative easing "inevitable." Spain is experiencing major stress now, while the economies of Italy and France are not as strong as that of Germany, "and are heading for an inevitable recession of a greater magnitude."
"Turning on the spending taps will lead to inflation across the globe and the question remains as to where it will be most severe," Misra concluded.
In the meantime, BTC inflation is set to decrease.
Andrei Edell, founder of a collectible indie card game on Ethereum (ETH), Flowerpatch, says that it's worth remembering that most cryptos, including BTC, have historically had high inflation: in the 5%-10% range. "It's actually kind of a miracle that the prices kept going up considering so many new coins were being created continuously." ETH still has an inflation rate at c. 4.4% a year, but the long-awaited Ethereum 2.0, aka Serenity, upgrade should push it into the 1% range. But since Ethereum may be burned when transactions are made in ETH 2.0, the net inflation rate could actually go negative, according to Edell.
In the case of BTC, he reminded that the Bitcoin halving, estimated in May, will reduce its inflation rate to below 2% for the next four years.
This is a reason that a bull run is likely in the next 12 months, Edell believes.
However, it might not be so simple.
As reported, Marcus Swanepoel, co-founder and CEO of crypto exchange Luno, warned recently that the positive trends for crypto may be stopped by a major problem: a massive global recession. Not only would onboarding go down but, despite people's belief in crypto, even the long-term hodlers may be forced to sell their BTC to survive. If crypto doesn't start decoupling before that, the recession would put major pressure on it.
Therefore, the aforementioned advice from Zac Prince is even more important: improve storytelling, marketing, and user experience.