Its exactly why bitcoin (BTC) was created, Michael Novogratz, CEO of the cryptocurrency-focused investment firm Galaxy Digital, told CNBC last week.
Its a common refrain heard these days from bitcoin bulls:The U.S. dollar and other currencies will eventually be debased by the injections of trillions of dollars of coronavirus-related aid and monetary stimulus bygovernments and central banks. That should, theoretically,strengthenthe case for bitcoin, the oldest and largest cryptocurrency, as a hedge against inflation.
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Such predictions might eventually come true, but for now bitcoin investors are stuck in a holding pattern: The cryptocurrency pushed above $7,000 on Monday, but for the past couple weeks it has struggled to hold that level, whichit hasntreliably traded above since early March.
Anice recovery from the lows leaves investors hopeful, cryptocurrency analysis firmArcane Research wrote Friday in a report. However, this is not yet reflected in the market sentiment.
Any inflationstemming fromfiscal and monetary stimulus could take a while to appear partly because of higher unemployment and a drop-off in economic demandcould relieve upward pressure on consumer prices in the near term. In the U.S. alone, roughly 10 million new unemployment claims were filed during the last two full weeks of March, and JPMorgan economists predictthat a report this week will reveal another seven million claims were filed last week. Bank of America says the lack of an effective policy response to control the spread of the virus will push 2020 global growth to a contraction of 2.7 percent, instead of an expansion of 0.3 percent.
Nic Carter, a partner at Castle Island Ventures and co-founder of the blockchain analytics startup CoinMetrics, wrote last week for CoinDesk that the devaluation of money does not happen immediately, but over time.
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The 2008 financial crisis prompted the Federal Reserve to doubletotal assetsin a matter of weeks, and then doubled the size of the balance sheet again to more than $4 trillion over the next few years. But it took the money supply, as measured by M2, more than 12 years to double, at least partly because of low demand for loans in the years after the crisis.
The bitcoin markets tepid reaction thus far to the Federal Reserves announcement of essentiallyunbounded quantitative easingmight disappoint some bitcoiners who are looking for a faster pump.
Sylvain Saurel, author of the blogIn Bitcoin We Trust, wrote last week that a separate move by U.S. regulators to reduce bankreserve requirements could lead to new money creation ad infinitum.
This unprecedented currency devaluation in such a short period of time has been decided by the Federal Reserve in a totally arbitrary manner, Saurel wrote. His conclusion,essentially, was that people should buy bitcoin.
Jay Hao, CEO of the Malta-based cryptocurrency exchange OKEx, wrote last weekin a blog postthat more proactive measures would be needed beyond QE infinity. Those could include anew super-sovereign currency to address trade and economic imbalances created by the U.S. dollars dominant role in global finance.
At present, bitcoinpossesses the characteristics of a super-sovereign currency, Hao wrote.
The investment narrative that bitcoin is a harder currency than U.S. dollars and is getting additional traction from next months halving on the bitcoin blockchain the once-every-four-years occurrence by which the pace ofissuance of new units of the cryptocurrency gets cut in half.
Traders are expected to get a chance this week to observe how prices oftwo bitcoin-offshootcryptocurrencies, Bitcoin SV (BSV) and Bitcoin Cash (BCH),perform as they go through their own quadrennial halvings.
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Someanalysts said last month that bitcoin was trading in syncwith U.S. stocks. That was seen as a sign thatsome investors were selling the cryptocurrency as part of anindiscriminate flight to safety into dollars.
Olga Feldmeier, CEO of the digital-asset exchange Smart Valor and a self-described outright bitcoin maximalist, says bitcoins price plunge earlier this year undercuts hopes that the cryptocurrency would serve as a safe-haven assetin times of market turmoil. She instead recommended tokenized gold digital tokens like the Pax Gold (PAXG) that offer a crypto-friendly way of investing in the yellow metal, long seen as a reliable inflation hedge.
Kraken, a San Francisco-based cryptocurrency exchange, noted in an April 4blog postthat the volume of PAXG trading on its platform surged to $13 million in March, a six-fold increase from February levels.
Kraken clients appear to see PAXG as a safe haven of late since it is backed by gold, which typically acts as a safe haven amidst economic uncertainty, according to the post.
But there are some indications that bitcoin might be trading more like gold in recent weeks. VanEck, a money-management firm that offers a bitcoin trust to qualified institutional buyers, saysbitcoins price correlation with gold jumped to 0.47during the last couple weeks of March, from an average 0.03 over the past eight years. (A correlation of 1 implies perfect synchronicity.)
The next couple months could prove pivotalfor bitcoin as the U.S. suffers theworst stretch of thepandemics health crisisand moves into the economic-recovery phase. Nancy Pelosi, speaker of the U.S. House of Representatives, told CNBC last week the recently passed $2 trillion aid packagewould not be enough. Treasury Secretary Steven Mnuchin said he wouldask Congress for more moneyif a $350 billion pool for small businesses runs out.
More bazookas needed, executives for the Wall Street dealer Jefferies wrote Friday in an open letter to clients and colleagues.
Is bitcoin the real digital gold? With more financial bazookas getting hoisted into position, cryptocurrency markets will serve as theproving ground.
Many Bitcoin advocates think it will prove to be a better long-term store of value than gold, according to the Kraken blog post. Only time will tell.
Editors caveat: No idea if this $20 Bitcoin Logo V2 Neck Gaiter Face Mask is real. If so the free publicity heredoes NOT representan endorsement. It seems like a high price for a mostly polyester bandana. But itcertainly isa sign of the times.
Bitcoin is again looking to establish a strong foothold above $7,000, having tested dip demand with a pullback to $6,600 over the weekend. The cryptocurrency printed a high above $7,100 early Monday and is currently changing hands around $7,090.
The bulls have repeatedly failed to keep gains above the $7,000 mark over the last three weeks, forcing investors to question the sustainability of recovery rally from the March 19 low of $3,867.
Even so, the bias remains bullish, as a pennant breakout confirmed April 2 is still intact. As a result, the cryptocurrency remains on the hunt for a test of the descending 50-day average, currently at $7,522.
If the upside break of $7,000 resistance again proves to be short-lived, the immediate bullish outlook would be neutralized. The bias would turn bearish if prices fall below support at the weekend low of $6,610.
That would open the doors to the higher low of $5,856 created March 30.
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