While COVID-19 has grabbed the headlines throughout the globe, within the Bitcoin community, the halving has taken center stage. Before the world plunged into social and economic turmoil, the price of BTC had rebounded remarkably from its 2019 year-end. The chorus of bullish voices was growing ever-louder and more persuasive: Bitcoin as a scarce asset would see its price skyrocket, some even estimated by more than $100K.
However, the events of ‘Black Thursday’ on March 12 where the stock market sell-off spilled over into the cryptocurrency markets saw BTC descend to as low as $3,867 shaking the faith of those clinging to the safe haven narrative. After all, BTC has traditionally faired well when the stock markets are down and global macro factors are uncertain. Yet the correlation between the markets was undeniable proving that investor confidence had taken a battering across the board as they fled to liquidate their assets.
However, since then, many interesting patterns have occurred. BTC has begun to decouple from the stock market once again. As equities
continued to remain jittery throughout March and April before rebounding, the cryptocurrency markets steadily began to climb. BTC tripled its price and the proponents of a sharp ascension after the halving raised their rhetoric once more claiming that BTC had regained haven status.
Sell-Off Pressure Around the Halving
While there are certainly many signs to suggest that bitcoin is beginning to prove its status as a haven asset, it still has a long way to go. Gold has been a hedge for investors over centuries–bitcoin has only been around for 11 years. Moreover, the effects of this global coronavirus pandemic could be even worse than the Great Depression of 1929. Unemployment in the U.S. alone is already approaching 15% and the crisis is still in its early days.
No market can escape such a cascade of joblessness, fear, and economic decline. Bitcoin has shown strong price resilience against such a stark backdrop, however, the fact remains that the Bitcoin halving is a double-edged sword right now for the number-one cryptocurrency. With a block reward slashed in half and a BTC price battered by global macro events, it was always likely that smaller-scale miners would leave the game and this would be followed by a sell-off pressure.
Still, BTC, compared with other traditional investments of high risk, such as equities and forex, is holding its own.
The Trillions of Dollars of Stimulus Packages
Governments around the world have pledged to do “whatever it takes” to save the economy from the COVID-19 crisis. However, history has proven that unchecked money printing and inflation of money supply can lead to the eventual collapse of countries’ economies. By creating trillions of dollars of stimulus packages to fight the coronavirus, governments seriously risk debasing their currencies–and the trust in them.
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Not only are we living in a time in which we could see widespread defaults and high inflation but we’re also starting to see everyday people question money creation. After all, if governments can simply print money at will, why the need for austerity, cut-backs, or even to pay taxes?
Seasoned investors in traditional markets understand better than anyone the precarious situation in equities right now–as well as the world of complications about to befall government fiat. COVID-19 has plunged the global economy into depression.
Indeed, most central banks have long been considering alternative non-currency asset classes. While gold and commodities have always been a welcoming option from the traditional market, they could be of limitation to hedge the risk during the global lockdown initiated by COVID-19, especially in the equity market.
Bitcoin as an Alternative Asset
BTC then becomes an alternative solution in terms of hedging, especially facing the economic issues generated by the pandemic. While it has its limitations as well, in terms of the channels that allow crypto trades, this is perhaps the greatest opportunity for BTC to be heard.
In a global crisis of such magnitude, this is the type of backdrop in which we may see BTC flourish for the long-term as it proves its worth to investors. In fact, infamous macro investors such as Paul Tudor Jones are now buying Bitcoin to hedge against the inflation they see will arise from central bank money-printing. The genie is already out of the bottle.
Traditional investors can no longer ignore the need to at least consider including Bitcoin in their portfolios. In an age in which money is losing its value fast, the stock markets are artificially inflated, and commodities like oil have fallen off a cliff, BTC has emerged as an alternative.
Investors with enough vision will understand that BTC is a long game. Those that can handle the marketing noise surrounding the halving and the short-term sell-off pressure will understand that in a changing world, the face of investment is changing as well. To use the words of Tudor Jones, they’ll all want the chance to own the “fastest horse” in this race.
Jay Hao is the CEO of OKEx