Looming Inflation May Give Bitcoin “Biggest Opportunity”
As the effect of the Coronavirus outbreak continues to bite globally, people quarantined in lockdowns and travel restricted with a recession in view, there could be inflation soon and it may give Bitcoin a shot at its biggest opportunity, a BitMex research suggests.
The exchange points out that the response to the virus will mark a significant economic regime change, from monetary policy to central bank-funded fiscal expansion for inflation to emerge following the economic circumstances of the 1970s with volatile inflationary expectations.
Global markets are in turmoil, with the U.S., for example, seeing more shutdowns of business operations while the likes of billionaire investor, Bill Ackman, foresees the end of the U.S. “as we know it” if the country is not shut down for 30 days to contain the spread of Coronavirus to rescue the economy.
Its GDP is also likely to crash by 13% on an annualized basis in Q2 according to a Deutsche Bank’s global economics team report cited by Yahoo Finance. Their projected rate of decline beats the contraction during the 2008-2009 financial crisis (8.4% plunge in Q4 2008) by more than one and a half times.
The U.S., China, EU countries and others have since unveiled relief packages in response to cushioning the effect of the crisis on citizens. As the volatility index reached 84.83 this week, just shy of the 89.53 peak reached in the 2008 global financial crisis, BitMex notes that it is becoming clearer that central banks and governments’ monetary policy response will not be enough. Hence the economic regime change to run large fiscal deficits funded directly by central bank purchases of government securities as part of a deliberate strategy to stimulate the economy.
“In our view, in this changed economic regime, where the economy and financial markets are set loose, with no significant anchor at all, not even inflation targeting, it could be the biggest opportunity Bitcoin has seen, in its short lifetime,” BitMex says.
Though there have been disjointed arguments in the past about its viability, the view that a recession sparked by the multiplier effects of the current Coronavirus pandemic will be Bitcoin’s first true test is gradually spreading. The more acceptance this view gains, considering that the top cryptocurrency was born out of the 2008 recession to mitigate against another, the higher the stakes will be on its chances to either survive or die off if the recession truly forms and drag on for long.
On the compounding fear about the likely outcome of the pending block reward halving – less than 50 days to go, Blockware Solution allays the fear in its latest finding. The blockchain service provider, which helps in the acquisition and sale of mining rigs direct from manufacturers, submits that though Bitcoin selloffs tend to accelerate as price gets closer to the miners’ cost of production, efficient miners ought to welcome halving if they understand the psychology of the miner and how game theory will drive behavior, pre- and post-halving.
“Bitcoin naturally has a sell pressure from miners that chips away at Bitcoin’s price. Post Halving less new fiat will be required to counter balance miner sell pressure,” it states. “As a result, Investment Funds and Hodlers will be more capable of stabilizing the downward pressure by injecting enough new fiat into the system to achieve long-term price appreciation.”
The volatile inflationary aftermath in the response to the global market crisis – backed by a timely halving – may make Bitcoin price shine but its current make or break test doesn’t take away the outlook that the Bitcoin technology could live or die by this moment.