The Coronavirus pandemic has become the biggest challenge the global economy has seen in modern times. As of September 10 2020, the disease has killed more than 100.00 people globally, disrupted businesses, and crashed the global stock markets. In this article, we will look at the main reason why investing in Bitcoin in the time of the Coronavirus makes sense.
We have seen many economic disasters before. In late 1929 and early 1930s, the world went through a global depression. In the 1970s, the world went through an inflation phase, which led to gold being unpegged from the dollar. In 1980s, we had the oil crisis, when countries in the Middle East cut-off the United States. Meanwhile, in early 2000s, we had the dot-com bubble and in 2008/9, we had the great financial crisis. All these financial crises were dire and unfortunate. Many people lost their jobs and companies went under.
Still, the Coronavirus crisis is the biggest of them all for several reasons;
- Asymptomatic transmissions. It is possible to have the disease and have no symptoms. In this time, you are able to spread it to other people.
- Countries affected. In the crises mentioned above, only a few countries were affected. Coronavirus has affected almost all countries and territories.
- Companies affected. The crisis has affected many industries like travel, logistics, retail, and tourism. These are more industries than those affected in the above crises.
- Scale of unemployment. At the peak of the 2008/9 financial crisis, only about 700k people applied for unemployment benefits. In the US, more than 3 million people have already applied for these benefits.
- Global debt. The world is sinking in debt. In the US, national debt has grown to more than $22 trillion. Many countries and people will likely not be able to pay their debt.
As a reminder, Bitcoin was created following the 2008/9 financial crisis. Satoshi Nakamoto, saw the state of the world, and decided to create a decentralized currency that was under the influence of no one. His ideas came to life after the Federal Reserve started the Quantitative Easing (QE) program.
What is Quantitative Easing? In short, it is a process where a central bank prints or creates new money from thin air. After printing, the bank channels the funds to the economy by buying financial assets like treasury bonds and mortgage-backed securities. At the peak of the crisis, the Federal Reserve added more than $4 trillion in its balance sheet.
This time, the Fed is doing more. In March, it released a statement saying that they had decided to offer an open-ended quantitative easing program. In other words, they removed the previous limit of $750 billion and are now printing more money than ever. Analysts expect that the Fed could print as much as $6 trillion in this cycle.
What happens when you print unlimited money? The answer is that the money becomes less useful, which leads to more inflation. In fact, the rate of inflation soared during the last quantitative easing. Therefore, as money becomes more useless, people move from it to other assets like Bitcoin and gold.
Not surprisingly, the Federal Reserve is not the only bank printing money. The European Central Bank (ECB) is printing more than 750 billion euros while the Bank of England is printing more than 450 billion pounds. Meanwhile, the vulnerable Bank of Japan is buying billions of dollars-worth of financial assets. In China, the People’s Bank of China (PBoC) too is printing vast amount of money.
Bitcoin is one of the best places you can invest your money during this era of Coronavirus. Indeed, as you can see below, the value of Bitcoin has dropped by a smaller margin than that of the Dow Jones Industrial Average and the S&P500 this year.
In the near term, we expect its value to accelerate for several reasons. First, more investors will move from cash to other assets as quantitative easing become the norm. Second, unlike the dollar and other fiat currencies that can be created from thin air, Bitcoin is created to avoid this. This is the reason why Satoshi Nakamoto placed a cap on the number of Bitcoins that can be mined. He also put in place a situation of reducing the supply known as halving.
Third, Bitcoin is becoming an invaluable asset to diversify your holdings. The chart above shows the reason why. While stocks tend to rise in the long term, short term losses tend to be severe. For example, the Dow Jones lost all the value it created in the last three years in less than a month. Therefore, by having a diversified portfolio, it is possible to be protected.
Fourth, Bitcoin has passed an important test during this crisis. In the past, crypto bears used to say that it will be impossible for Bitcoin to survive a recession. This has been proven wrong since Bitcoin is still going strong.
Finally, Bitcoin is built on very strong fundamentals that cannot be altered by anyone. For example, Bitcoin halving is set to take place between May and June. This will happen no matter what. This is unlike what we have seen in stocks, where companies are postponing their earnings. Or what is happening with currencies, where central banks are creating money from thin air.
There are several ways you can invest in Bitcoin. The easiest is where you create an account with a Bitcoin exchange and buy yourself Bitcoins. Some of the best-known Bitcoin exchanges are Kraken, Binance, and Coinbase.
Another option is where you buy Bitcoin securities. In the United States, you can easily buy Bitcoin using brokers like Robinhood. In this case, you don’t own physical Bitcoins. Instead, you own Bitcoins that have been securitized.
You can also buy Bitcoin CFDs. A CFD means Contracts for Difference. It is a financial asset that is offered by many online brokers like ATFX and FxPro. As with Robinhood, you don’t own any Bitcoin, but you will benefit when its price rises and falls.
Life changes after every financial crisis. Bitcoin is the biggest story after the last financial crisis. In the dot com bubble, many companies died but others, like Google and Amazon, moved on to become the biggest companies in the world. I believe that Bitcoin will emerge from the Coronavirus crisis as a better and stronger asset to invest in.