Opinion | Why the world’s interest in Bitcoin is just beginning

Source: Orange Book

After the plunge, people's attention to Bitcoin has changed from "safe haven assets" to "when will it decouple from the US stock market". In the past few days, this decoupling phenomenon seems to have occurred, but it is still uncertain. More important than decoupling is the future trend of Bitcoin.

During the 2008 financial crisis, gold also initially fell by more than 30%, and did not start to rise again until the mid-to-late stages. How will Bitcoin perform in this economic crisis? Sorry, I don’t have an answer either. In this weekly report, I would like to share the views of Coindesk Institutional Crypto [1]. He believes that the global interest in Bitcoin may have just begun, mainly due to four factors.

You can judge for yourself whether these four reasons make sense or not. In fact, if we summarize it into one core point, it seems that they are all "shorting the whole world"... :P

1) Loose monetary policy: Central banks around the world are doing their best to save the economy, and the limitation of money supply has been forgotten. As the crisis spreads, a large amount of money will come in, not only to assist the market, but also to inject funds into people's livelihood and enterprises. In the 2008 financial crisis, it was the market that dragged the economy down, but this time, it is the economy that dragged the market down. These strategies and stimulus measures that have alleviated market panic in the past may be difficult to awaken the demand contraction caused by mandatory shutdowns, unemployment and social panic.

Printing a lot of money may help if it actually reaches consumers, but it will also add inflationary pressure, especially now that our economic system has no effective tools to fight inflation. The general anti-inflationary measure is to raise interest rates, but in a heavily indebted environment, doing so may trigger another wave of corporate and even sovereign government defaults. Growing inflationary pressures and steady and persistent currency depreciation will most likely increase interest in deflationary assets such as Bitcoin and gold, which can also be used for payments in some cases.

2) Currency Market: Investors around the world are running to the U.S. dollar, which has become a safe-haven asset, and the price of the dollar relative to other currencies has also been raised. If imports are not disrupted by supply chain restrictions, the increase in the price of the dollar will reduce the price of imported goods, bringing benefits to American consumers. But on the other hand, as the price of the dollar increases, domestic manufacturing in the United States will lose competitiveness, and foreign holders of dollar-denominated debt may fall into default. Other countries' import and debt repayment costs will surge, and their local currencies will depreciate, further pushing up the price of the dollar.

The surge in demand for dollars could lead to a liquidity crunch - the Fed announced last Sunday that it would establish temporary dollar liquidity swaps with foreign central banks, which were further expanded on Thursday. This is a worrying sign that the initial measures are not enough to ease the pressure on the dollar in foreign exchange markets. Similar to the Plaza Accord in 1985, the global call for concerted action is growing louder. But in the current international environment, getting the rest of the world's economies to follow the increasingly closed-off, border-wall-advocating US government led by Trump is a more daunting challenge than the post-stagflation era of the late 20th century.

As the global monetary order becomes increasingly broken, economists and investors need to keep asking what the next monetary order will look like. Bitcoin may be part of the solution, or it may not be part of it — but it is at least a new tool at our disposal.[2]

3) Emerging Economies: A sharp rise in the price of the dollar, combined with a contraction in demand, could push non-dollar economies into recession, triggering social unrest and even leading to regime change in some regions to resolve the unrest. If it comes to that, fear of expropriation by political parties in power struggles could fuel interest in stores of value that have both liquidity and private asset attributes.

4) Populist tendencies: While more mature democracies will respond to economic decline and social unrest through negotiations and trade-offs, even these countries are likely to turn to populist activism. These may come in different forms, such as additional support for overstretched health systems, additional support for businesses and individuals in hard-hit areas that have seen a drop in demand due to mandatory closures, etc. In order to keep the budget balanced, this support may eventually need to be paid for through fiscal policy, that is, it means increasing taxes.

While Bitcoin should never be used for tax avoidance (never do it, okay?), investors in certain jurisdictions may risk being caught for tax avoidance. More importantly, in the spirit of encouraging investment, fiscal policy measures are generally more lenient on "returns on capital investment" than "returns on high income" - this may prompt some high-net-worth individuals to turn to assets with higher risk-return characteristics.

References [1] Coindesk Institutional Crypto’s view: https://view.coindesk-email.com/?qs=d5b5164f34b3dfcade8cfa59ef9e99d29c99cbe3608bdc3f043765a7d4aa5416e92d1aff7340fc35aa5b65e68a2f2ad66ea0f7d671fbb6fd8a7ce8215e788f10f893d35c0cc9ed57e684a9570ed57e25

[2] It is at least a new tool at our disposal: https://click.coindesk-email.com/?qs=3c4414e8208593a45670a7666f4a762d6377bb4425572283658b4fa31e405b7b6d4158b2005e54f89c14d8ac1c3c7cf2169a2c37c1b522e5