Bitcoin is considered “healthy money” is a common refrain among many advocates of the popular cryptocurrency. With a finite supply of 21 million and a network secured with more than 120 exahashes per second of computing power, consensus among industry commentators often tends to make it a global monetary superpower.
After barely ten years, Bitcoin’s derivative value is already the 11th largest global monetary base. Earlier in November Bitcoin got bigger than the Russian ruble for the first time in history.
While fiat currencies are collapsing under economic pressures exacerbated by the coronavirus pandemic, Bitcoin (BTC) has continued its upward trajectory for most of 2020. While price movements are much more volatile, BTC is up around 120% since the start of the year, despite the Black Thursday event, which suffered a significant decline in mid-March.
With economic recovery plans likely to bring significant stimulus packages, such injections of money are expected to cause a significant devaluation of currency values. If Bitcoin the parabolic progress predicted by numerous market analysts, it is ready to move even higher in the global basic monetary log.
The whole record of the history of the world reserve currency remains consistent with the monetary bases rising and falling. In the six monetary eras since 1450, no currency has maintained global dominance for more than 110 years. With the US dollar as the world’s reserve currency for 95 years, some hope this is a sign that things may soon change.
Fiat currencies weaken
Despite being the most gold-backed fiat currency in the world market, the Russian ruble now has a lower monetary base than Bitcoin. As the ruble continues to lose ground to the US dollar and BTC jumps to $ 16,000, 1 BTC now equals 1.2 million rubles. Bitcoin’s next step in its attack on major currencies is the Canadian dollar. Based on the current circulating supply, a move of more than $ 18,000 for BTC would overtake the CAD.
As previously reported, Bitcoin is already at an all-time high against seven national currencies including those of Brazil, Argentina and Turkey. Rising inflation, exacerbated by economic stagnation due to COVID-19, has negatively impacted several fiat currencies.
For now, Bitcoin’s all-time high remains the $ 19,665 it hit during the December 2017 bull run. numbers should reach, said John Todaro, head of research at institutional trading platform TradeBlock, who told Cointelegraph. :
“We could see Bitcoin outpacing other major fiat currencies, but it depends on how one measures the size of an FX market. The New Zealand dollar (‘kiwi’) is at the bottom of the group and is most likely to be passed by Bitcoin, but is currently seeing more than $ 100 billion in daily trading volume, which is well above Bitcoin’s. Unlike other hard money assets, Bitcoin has a high trading turnover, so even at a modestly higher market cap, Bitcoin’s fictional trading volume could be quite a bit higher than it is today. “
Bitcoin shines when the global economy stutters
The parabolic advancement required to propel Bitcoin to such heights would also place BTC firmly in the same category as gold – as a bona fide store of asset value. Several proponents of the popular cryptocurrency are already identifying BTC as a suitable hedge against monetary humiliation and other forms of economic uncertainty.
Amid interest rate cuts in 2019, Travis Kling, founder and chief investment officer of Ikigai Asset Management, warned that the debt situation at the time was a recipe for a new global financial crisis. According to Kling, central banks used growth rates to paint the impression of a healthy economy. When Kling made these comments, the world was still untouched by the coronavirus pandemic.
Bitcoin often featured in the discussions of possible safe haven assets that as a hedge against a new global recession. Amid the COVID-19 panic to sell assets, BTC failed to escape the massive Black Thursday liquidation, proving that it has not yet achieved that coveted status. The largest crypto by market cap crashed by nearly 50% to come in at around $ 3,800. However, in exactly eight months since then, the price of BTC has risen more than 300%.
Commenting on the possibility that Bitcoin will ever hit a new record in the near term, Todaro noted that it will be difficult to secure a sustained push toward the record before the end of 2020, adding further: “This bull cycle should put us well beyond previous longer-term ATHs and with increasing government spending and May’s halving behind us, we are poised for one of the most attractive bullish periods in Bitcoin’s history.”
Joe DiPasquale, the CEO of crypto hedge fund BitBull Capital, also sees Bitcoin set a new all-time record during this current bull run, telling Cointelegraph, “It’s very likely [that Bitcoin reaches a new all-time high] as Bitcoin has now crossed USD 16,000 which was a major resistance level. $ 20,000 is not that far from this point unless major negative developments impact the market in the near term. “
COVID-19 and Infinite Quantitative Easing
While inflation remains a real concern for many countries, 2020 was a pivotal year for Bitcoin in terms of supply dynamics. During the halving event in May, the supply of new Bitcoin was halved.
Meanwhile, in response to the economic tension created by COVID-19, several governments have adopted proactive monetary policies, including stimulus cash injections. The World Bank estimates it is global gross domestic product expected decline by 5.2% in 2020 – the largest contraction in decades. In June, the World Bank outlined a roadmap for countries to face economic hardship, citing:
“Both short- and long-term rebuilding policies include strengthening health services and taking targeted incentives to revitalize growth, including support for the private sector and getting people straight to the people. money. During the mitigation period, countries should focus on supporting economic activity with support for households, businesses and essential services. “
Some companies are recognizing the declining value of cash and are already turning to Bitcoin as a treasury reserve. Nasdaq-listed MicroStrategy made headlines in August when it was announced the acquisition of 21,454 BTC – valued at the time at $ 250 million. More interest from major traditional institutions soon followed when they tried to buy Bitcoin as a reserve asset.
The business intelligence firm doubled its Bitcoin acceptance policy with an additional purchase of 16,796 BTC ($ 175 million) in September. In less than two months, the company has seen the value of its BTC holdings grow by more than $ 160 million. Similar things can be said of other non-crypto native companies that have bought BTC as a reserve.
While Bitcoin retains certain characteristics with regard to currencies, the lack of fiat supply limits makes any attempts to make comparisons between the two somewhat problematic. If so, market capitalization may be a better parameter in measuring Bitcoin’s growth relative to the size of other major asset bases, as DiPasquale stated:
“Bitcoin surpassing fiat currencies is not a measure we should focus on, as fiat currencies as such have no circulation limits. Instead, market cap is a better measure, and Bitcoin is now among the top 20 assets (stocks, ETFs and cryptocurrencies). “
Economic downturn is likely to be difficult to reverse
In a speech delivered on Nov. 6, Jerome Powell, Chairman of the US Federal Reserve, downplays expectations of a rapid recovery from the current economic contraction: “The current economic downturn is the worst in our lives. It will take some time to return to the level of economic activity and employment that prevailed at the beginning of this year. “
Powell’s comments echo similar warnings from the World Bank and other financial institutions. Indeed, the overwhelming consensus is that the confluence of global, regional and national economic constraints exacerbated by COVID-19 are difficult to reverse in the short to medium term.
Pharmaceutical giant Pfizer recently announced that its The COVID-19 vaccine was more than 90% effective in preventing the virus. While the development is some good news in the fight against the pandemic, market analysts say the economy is destined for a downward path regardless of a vaccine.
Todaro believes “the stock markets value the COVID-19 vaccine as a savior for industrial and private companies.” However, he added that good news alone will not trigger the economic recovery, as the dynamics of supply and demand must be restored. In addition, according to Todaro, several incumbent companies are in dire financial straits, and with no additional relief from governments, they are likely to go bankrupt: “This uncertainty is starting to reappear now as stock markets are seeing a decline.”
With more pain in the offing, Bitcoin looks poised to receive even more institutional attention as big-money players are looking for alternative investment vehicles. Indeed, the flow of smart money to Bitcoin already has some stakeholders predicting that BTC will challenge gold as the de facto hedge asset of choice for institutional investors.