In quarter first of 2020, the US economy is contracting at a rate not seen since the Great Depression of the 1930s. Also, a total of 30 million Americans filed for unemployment claims in just six weeks.
Amidst this, the Federal Reserve printed trillions of dollars to soften the blow of the coronavirus lockdown on the economy. But it wasn’t only the Fed, other major central banks around the world fired up their money printer to print a coronavirus-triggered collapse of their economy.
And this money supply lifted up the price of stocks this month.
-Global GDP loss est. for 2020 & 2021 = $9 trillion
-Global fiscal stimulus = $8 trillion, more on its way
-Monetary stimulus =$3.4 trillion injected by the Fed, ECB & BoJ since Mar/1, more on its way
Fiscal + Monetary stimulus > Output loss
That’s why asset prices bounced. pic.twitter.com/Ivy7Ts5jMr
— Alex Krüger (@krugermacro) May 1, 2020
But what all this free money that has been created at the fastest rate ever cannot do is keep people from losing their jobs or restore lost production.
This means while the money supply is shooting up, the supply of goods is shrinking. Bruce Ng and Juan Villaverde of Weiss Crypto Ratings noted,
“More and more dollars chasing fewer and fewer goods is the textbook definition of inflation. And as inflation comes roaring back, it’s going to send safe-haven demand for top-rated cryptocurrencies blasting up.”
The authors argue that this excessive amount of fiat currencies supply has been at a time when buying crypto has become easier than ever.
Moreover, while the world is having quantitative easing, bitcoin is preparing for quantitative hardening in less than 10 days.
Becoming a safe haven
In its latest report titled “Quantitative Tightening,” Grayscale Investments also noted that bitcoin is the best bet against central banks’ money printing as unlimited fiat money could result in the debasement of the US dollar. The report states,
“Untenable levels of debt and fears of widespread default are driving the most aggressive monetary policies since Bitcoin’s creation.”
Currently, we are in an environment where government bonds are offering zero or negative yield, fiat currencies are at risk of debasement, and the coronavirus-lockdown highlighted the delivery issue with the traditional safe-haven asset gold.
The options to hedge are limited and according to the largest crypto asset manager, bitcoin is one such option that will go through supply shock this month. It summarizes,
“Bitcoin is showing signs of becoming a safe haven while maintaining an asymmetric return profile.”
The company that reported a record-breaking Q1 despite the crypto prices tanking amidst the global market rout also advised investors to “understand the effects of government monetary and fiscal intervention.”
Bitcoin market participants are also expecting this quantitative hardening to spark a bull run but Charlie Shrem recently said it will happen just not immediately.
During Virtual Blockchain Week, Shrem shared how the halving coinciding with coronavirus “a black swan event” is “crazy.”
Now as people start getting their unemployment benefits while sitting at home and suddenly bitcoin daily supply is going to be cut in half, according to him, all this money could flow into the bitcoin market.