Disaster Protection - Bitcoin in the Corona Crisis

May 7, 2020

We reported in detail in our blog post on January 16 that Bitcoin was named the best investment of the last decade by CNN. In today's article, we examine how the number 1 crypto currency is currently even able to defy the corona crisis and also start the year 2020 and thus the new decade with a strong performance.

Bitcoin as a safe haven in times of crisis

The fact is: After the new decade began with global turbulence as part of the Corona crisis, which initially shook all markets without exception on March 12, a familiar picture emerges just a few days later: Bitcoin is recovering quickly, surpassing its unprecedented levels Dynamic both the stock market and gold and starts the crisis year as currently the best investment product.

It is also clear that Bitcoin differs greatly from classic assets, with the 4 most common asset classes shares, bonds, commodities and currencies all correlating to a certain extent with one another. Bitcoin alone, as a free currency independent of banks and states, creates a decoupling from these classic assets and even a few days after the big crash even made the jump to around USD 8,800 and is thus around 22% above the value at the beginning of the year.

Bitcoin proves to be a store of value in the Corona crisis

The latest data show: Bitcoin was able to successfully demonstrate its status as a store of value during the Corona crisis.

While Bitcoin has apparently been able to withstand the Corona Crash of March 12th and the ongoing crisis so far and is already well above its level at the beginning of the year, things are still looking relatively bleak for the traditional markets.

After the crypto market also collapsed briefly in March, Bitcoin is currently much less fluctuating than the stock and oil market in the course of the crisis and has remained stable in value overall despite the brief flash crash.

In addition to these factors and advantages, which are already visible in the short term and which currently speak clearly in favor of Bitcoin and against the traditional markets, there are the more long-term and even more massive effects of the current monetary policy, which reveal Bitcoin's unique properties more than ever. Features that distinguish Bitcoin from any other asset:

Expansive monetary policy by banks and governments

At the beginning of March, the traditional markets suffered their worst losses since 1987, and so many experts predict that the shocks that shook the entire global economy at the beginning of 2020 will even overshadow the financial crash of 2008 in the medium to long term.

Central banks and states around the world are not only explaining further interest rate cuts, purchases of assets such as bonds or shares, tax breaks for companies or emergency loans: a measure that was actually considered by experts to be one of the toughest and therefore last resort is currently already in the USA Planning: the helicopter money.

In addition to "quantitative easing" and "negative interest rates", helicopter money is actually one of the last monetary policy measures and manifests the beginning of a new phase of state monetary policy that can shake our entire financial system even more in the long term than it already has, but which on the other hand a free currency that is independent of banks and states, such as Bitcoin, plays extremely well.

Because through the "money printing" of the central banks, the money supply is massively increased and the currency devalued in the long term due to inflation. In addition, there are other monetary policy measures such as emergency loans or bond purchases, which also “print new money”.

Although these effects only become visible after months or years, they inevitably lead to a massive devaluation of reserves and savings.

The voices that emphasize that the pandemic should be viewed as a pure trigger or catalyst and in no way as the cause of the visibly fragile global economic order are also getting louder.

Angus Coote, co-founder of the Australian wealth management company Jamieson Coote Bonds, describes the current situation to the Guardian as follows:

“I've been in business for 25 years and even the global financial crisis is like a children's birthday party. (...) It is a disaster."

He warns in particular of the outstanding liabilities of companies amounting to over 2 trillion US dollars in the US alone, which should actually be paid off during the course of the year. In particular, the so-called "zombie companies", which are already particularly fragile and were only able to keep themselves afloat with loans even before the crisis, are getting into trouble due to the currently massively restricted economic life. affects around 15-20% of all companies in Germany. This threatens a massive loan default, which in turn shakes banks, which ultimately have to be rescued by the state again, which further affects the financial system and inevitably ends in a vicious circle and the collapse of the economic and banking system.

Raoul Pal, founder and managing director of Global Macro Investor and former sales director at Goldman Sachs, finds similar gloomy words as Coote:

“We run the risk of the entire financial system collapsing. (...) I think it will be the biggest bankruptcy event in history. "

Bitcoin vs. Central banks' “money printing orgy”

On the other hand, however, Pal adds that especially "hard assets" like gold will benefit massively from these developments, but not nearly as much as Bitcoin:

"I can't put into words how optimistic I am about Bitcoin at the moment."

Explanation: The “hardness” of an asset describes how scarce an asset actually is and by the term “hard assets” we mean assets that cannot be easily produced or whose supply is limited. It therefore requires a large amount of effort to promote it and, unlike regular fiat money such as euros and dollars, the amount of this asset cannot be simply increased at will. The two best examples of this are Bitcoin and Gold.

Pal's optimistic mood is therefore based in particular on the fact that Bitcoin will soon be the asset with the world's highest degree of hardness and thus the best protection against the expansive monetary policy of the central banks and thus the best way to defend against the threatened devaluation of savings . Bitcoin is fundamentally protected against inflation and there will never be more than a total of 21 million pieces.

The reason for this: Bitcoin is doing exactly the opposite of what central banks have been doing for years. It is designed with a “quantitative hardening” in mind and thus stands in literal contrast to the current monetary policy of the central banks, which is also known as “quantitative easing”.

This means that while central banks “print” large amounts of fresh money as part of quantitative easing, the rate of increase in the amount of Bitcoin in circulation is gradually decreasing. This inevitably increases the so-called “degree of hardness” of the cryptocurrency, as fewer and fewer new units are created compared to the amount in circulation that is already in circulation. While the hardness of national currencies is being “softened” more and more by the expansive monetary policy, Bitcoin, on the other hand, will achieve a hardness level of 54 in 2020, similar to gold (58).

From 2024, the digital gold "Bitcoin" will even reach a value of over 100 and will officially become the hardest asset that has ever existed in human history, although it should be noted that in the past it was always the hardest asset in the past has prevailed in the long term!

Since Bitcoin's degree of hardness will continue to rise well beyond 2024, quite a few analysts and experts already see it as the number 1 store of value and crisis protection.

Not only has it been able to assert itself as far more resilient than the stock market during the crisis: In addition, unlike almost every other industry, Bitcoin does not need any support from central banks in order to survive.

While a spokesman for the American central bank announced a few weeks ago that the financial institution could print “unlimited” money if necessary and that the Fed and the ECB alone are already providing funds worth the equivalent of over 9.2 trillion euros (and the trend is still rising), critical voices getting louder:

The "money printing orgy" of the central banks, as the billionaire Michael Novogratz describes the currently devastating market and economic situation, could, however, additionally heat up the Bitcoin price in the medium to long term and even provide for much higher prices than most models have already predicted will.

The current Grayscale report strikes similar tones, which also emphasizes the advantages over gold, as Bitcoin is much easier to obtain and use and is also completely independent of the functionality of supply chains.

“Local currencies are threatened with devaluation, government bonds only bring low or even negative interest rates and delivery problems highlight the no longer up-to-date status of gold as a store of value. There are few alternatives in this time of uncertainty. (...)Bitcoin is showing the first signs that it is becoming a store of value, while at the same time showing a positive risk-reward ratio“

Bitcoin as an absolute "all-purpose weapon"?

Billionaire and crypto expert Novogratz, who describes Bitcoin as an “all-purpose weapon” and a means against economic turbulence of all kinds, comes to a similar conclusion. The reasons for this and the differences to other asset classes are as obvious as they are diverse and reveal themselves more clearly than ever in the crisis:

In the event of debt rescheduling and debt relief, Bitcoin will benefit massively as an uncorrelated asset. In the case of negative interest rates it becomes a tempting asset and in the case of the ever increasing devaluation of fiat money it should increase enormously in value as a scarce cryptocurrency as the money supply grows.

Furthermore, unlike company shares and stocks, Bitcoin has no debts to break its backbone. Unlike the US dollar, it cannot be inflated and, unlike gold, Bitcoin is easy to trade and transfer.

Even if Bitcoin can still be viewed as young and its price fluctuates from time to time, it is anything but fragile and has so far performed better than all other assets, some of which are centuries old, in this crisis.