Crypto Economy: Bitcoin Will Likely Hedge Against Hyperinflation
Wed, April 21, 2021

Crypto Economy: Bitcoin Will Likely Hedge Against Hyperinflation

 

Bitcoin (BTC) is a digital currency that uses peer-to-peer technology and can operate without a central authority or banks. / Photo by pedrosek via Shutterstock

 

The global economy is not looking good right now but economists are predicting that bitcoins will be a safe-haven asset for those trying to escape the financial impact of the Covid-19 outbreak.

 

Bitcoin as a safe-haven asset

Bitcoin (BTC) is a digital currency that uses peer-to-peer technology and can operate without a central authority or banks. Although it is not considered a legal tender, the digital currency scores high on popularity and has triggered the launch of other virtual currencies. Bitcoin is stored and exchanged on the internet through a digital ledger called blockchain.

Internationally-renowned macro advisory publication Global Macro Investor’s CEO Raoul Pal predicts that bitcoin will be worth $1 million in the next five years.

Crowdgrowing platform Juicyfields’s CEO Alan Glanse also told Bitcoin.com that bitcoin will see a “substantial market growth” within two to three months. The stimulus packages passed because the coronavirus pandemic in some countries have invoked economists to think that bitcoin will hedge against macroeconomic hardships and hyperinflation.

 

A bull case for bitcoin

Digital asset gateway Coinzoom’s CEO Todd Crossland also believes that the stimulus package from the US Federal Reserve will pave the way for bitcoin’s bull case. In a bull market, prices are expected to rise or are rising. Bull market does not just refer to the stock market but also applied to anything that is traded, such as currencies, commodities, real estate, and bonds.

Crossland, who had a successful track record of over two decades in financial services, venture capital, and investment banking, said that he supports and applauds the efforts made by the government in providing stimulus for the economy. Some of the most aggressive measures done by the government including the printing of dollars amid the pandemic. Yet, the stimulus will also lead to inflation and may afterward pressure the value of the dollar. This is why it will paint a bull case for digital assets, such as bitcoin.

 

Bull market does not just refer to the stock market but also applied to anything that is traded. / Photo by katjen via Shutterstock

 

Bitcoin to capture a share of the gold market

Pal, Glanse, and Crossland are not the only people who believe that bitcoin is in a “parabolic phase” while the global economy is feeling the hardships from the lockdowns. Rothko Research, a firm that provides analysis on the current global macro themes, shares that bitcoin could capture 3 to 5% of the global gold market share in the medium to long term. It said that picking the right asset allocation can generate great returns for investors in the long term.

The combination of both fiscal and monetary stimuli will be inflationary in the medium term and gold has been trending higher compared to other currencies. This is why Rothko Research analyzed that the trend will also happen in the crypto market. Capturing the share of the market means enjoying the profits of any company that is serving in that market. With approximately 18.3 mined bitcoins, a 3 to 5% gold market cap will price a unit of such digital currency between $17, 240, and $28, 740, Rothko Research added. The numbers may not impress a lot of investors since bitcoin has been trading at $20,000 in December 2017 but it is still 2.5 to 4 times higher than the current price.

 

The emergence of a new class of bitcoin millionaires

Luke Fitzpatric, a guest lecturer in cross-cultural management at the University of Sydney, also expects a new class of bitcoin millionaires. He discussed bitcoin halving, an event that takes place every 4 years. During the said event, block rewards for “mining” are cut in half which limits the supply of bitcoins in the market. Since there will be less bitcoin available to buy and the demand stays the same, the price of the said digital currency will then increase.

Historically, there have only been two bitcoin halvings, which happened in November 2012 and July 2016. The third bitcoin halving will happen this month of May. American venture capital investor Tim Draper also believes that one bitcoin will be worth $250,000 while Buffet’s Books founder Preston Pysh said that it could skyrocket to $300,000 after bitcoin halving. Raoul Pal himself said the price may hit $1,000,000 within 3 years.

 

 

Just as how the previous bitcoin halvings created countless millionaires, more will materialize for May 2020 halvings. As the world is going through a major financial shift because of the pandemic, investors have dropped stocks for cash. This resulted in liquidity crunch or when investors exit liquid investments and shit to secondary markets in pursuit of cash. The price of digital crypto-assets may have temporarily dropped but they have already fully recovered.

Fitzpatric emphasized how there will be a “massive shift in wealth.”  While governments are printing money to help its people and ease debt burdens, it will weaken their own currencies and increase monetary inflation.

 

Currency crisis and BTC trading record

Demand for bitcoin has reached new highs in Venezuela, the Bahamas, and Lebanon as the countries grapple with the economic crisis. A Lebanon crypto trader told local news, “If you want to go around the banking system, bitcoin is a solution.”

Bitcoin proponent Rhythm Trader also shares how the society is now witnessing “wealth transfer” as millennials don’t trust banks and financial institutions these days but trust cryptocurrency as an asset.

BTC is now trading at the current price of $7,620, a notable climb from the daily low of $7,450. It also has a market capitalization of $140.00B, according to Bitcoin.com. Another cryptocurrency that's pushing higher in the market is Ethereum, trading at $195.98 and with a market capitalization of $21.70B. It is followed by XRP ($0.2073), Thether ($1.0010), and Bitcoin Cash ($240.88).

 

 

As of April 2020, Tether was the most purchased cryptocurrency worldwide with a 24-hour purchase volume of US$43.42 billion. Other leading virtual currencies worldwide by 24-hour purchase volume in the same month are Bitcoin ($33.96 billion), Ethereum ($14.67 billion), Bitcoin Cash ($4.33 billion), and Bitcoin SV ($3.5 billion). The survey was conducted by the German database company Statista. Other notable virtual currencies mentioned by Statista are Litecoin, EOS, XRP, Ethereum Classic, and TRON.

Bitcoin is showing signs of serious strengths and plenty of crypto proponents are optimistic about it. As millennials are embracing the digital age, the virtual currency is now in a better position in the market as a storage of wealth.