By OSL CEO Wayne Trench
The coronavirus is now worldwide, and many are wondering whether a long-forecast financial crisis and potential recession will follow.
Quantitative easing measures and the ongoing oil price war are additional factors that have created more unknowns in the market than at any time in recent memory.
All major indices are down from all-time highs recorded a little over a month ago, with the S&P 500, Dow Jones Industrial Average and NASDAQ down approximately 35%, 38% and 29% respectively.
In tandem, governments and central banks have now begun perhaps the most aggressive stimulus plan in the history of the modern financial system.
As an additional measure to several previous emergency rate cuts, the Fed on Monday unveiled unprecedented quantitative easing measures that many are calling “QE to infinity.” The US government also announced a $1 trillion relief package, and is preparing a stimulus plan that would potentially grant every American up to $2,000 until the coronavirus hardship ends.
This comes as the Bank of England cut rates to 0.1%, whilst the ECB announced a €750 billion Pandemic Emergency Purchase Program (PEPP) to acquire private and public sector securities in an attempt to mitigate economic risks. Meanwhile, a price war has sent the price of crude oil down some 62% in four weeks.
Bitcoin’s time to shine?
Flight to the almighty dollar was initially not only felt by EM currencies, but also by BTC, which lost 51% of its value from March 11-12. That said, its bounce from recent lows of around $4,000 was also extreme, rallying strongly to around $6,600 at the time of writing, a rebound of more than 60%.
On the back of this constructive price action over the last week or so, a positive narrative is again building for the Big Daddy of Crypto. Many are again referring to BTC as a relative safe haven, or at the very least, a sensible addition to a diversified portfolio, particularly given the recent decoupling from traditional markets.
The ongoing losses in equity markets combined with central banks running the printing presses on overdrive for QE, gives real credence and credibility to the benefits of Bitcoin – it’s digital, transparent, finite in supply and geographically boundless.
Bitcoin’s scarcity is in many ways akin to gold, whilst offering greater independence, mobility and utility. In addition, the upcoming halvening event in May will potentially serve as another catalyst for Bitcoin’s value accretion. To put this in perspective, around 86% of a total of 21 million Bitcoins have already been mined. Elementary supply and demand theory gives support to the notion that this limited supply, combined with an increasing uptake, could well drive prices higher over time.
It’s also worth remembering that in many ways, Bitcoin was a product of the 2008 global financial crisis (GFC). According to the Satoshi Nakamoto whitepaper, Bitcoin was created to provide an alternative to what he/she/they considered a broken system. Many argue that the events of the past weeks suggest that the current situation could progress to be worse than in the GFC. If that is the case, Bitcoin may well become an even more attractive value proposition for investors.
Whilst there’s few certainties in life – and particularly so in financial markets – we believe that the current economic climate presents a real opportunity for Bitcoin to lay further claim as the preferred alternative to traditional fiat currencies and other asset classes.
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