Bitcoin as an Insurance in COVID-19 Period
Bitcoin is often neglected as an investment choice. A lot of people have written it off as fake money or a scam. Despite these notions being spread through different groups, Bitcoin has managed to stay profitable through most of its existence. This is one of the reasons Bitcoin could be considered as a suitable medium of insurance against the economic events that follow the COVID-19 period.
Bitcoin as Insurance in COVID-19 Period With Bitcoin
The COVID-19 pandemic has destroyed different businesses and households. Whether they were making billions, millions, or thousands of dollars, the pandemic caused a shockwave of financial disasters which will be felt deeply for years to come. During this period, Bitcoin (despite feeling the sting of price crashes) managed to maintain price levels that met expectations of investors. It has also exceeded some expectations while fiat and stocks plunge to their doom.
Global events in recent times pull the mask off the fiat currencies. The dollar has been exposed to significant inflationary pressure which has given savers more hills to climb in their journey to financial freedom. This is one of the factors that have made Bitcoin more popular during this period as a storage of value.
WHY IS DOLLAR DYING? 2008 Fed printed $4.5 Trillion to save rich. 2020 Fed will have to print $6-8 Trillion, maybe more to save US economy. There is only $9.5 Trillion in gold in WHOLE WORLD. Buy real gold silver Bitcoin. No paper ETF gold or silver. PhDs at Fed are IDIOTS.
— therealkiyosaki (@theRealKiyosaki) April 7, 2020
The original goal of cryptocurrency was to create a decentralized digital currency that is not controlled by a central government. It can be used anywhere in the world and is easily accessible online. One Bitcoin in America is the same as one Bitcoin in Canada. This means that certain risks that come with using fiat currency are essentially extinguished. Whether you are a business trying to avoid currency risks or an individual trying to transfer money across borders at a cheaper rate, Bitcoin saves a lot of headaches (and money).
The Digital Gold
To both new and seasoned investors in the Bitcoin space, it is the digital gold. After breaking through resistance levels, the cryptocurrency was able to shoot past $7,000. This was a far cry from its price crash earlier in the year which saw its value drop by 40%. Since then, prices increased by 70% from lower points.
On the other hand, more cryptocurrency holders are in need of fast cash. Even with stimulus packages and government support, times are proving to be very challenging. Many investors have to sell their cryptocurrency assets to make ends meet.
According to the Bitcoin Lab CEO Tetsuyuki Oishi, stock markets could lose their attractiveness after the coronavirus crisis due to the lower demand for many companies’ products. Lower demand will result in declines in corporate profits. Investors are left with a major dilemma. They cannot leave everything in cash but they must take measured risks with stocks.
$3,000,000,000 in Stablecoins on the Sidelines
Bitcoin is attractive because of its low correlation against traditional investments. Many investors have not discovered this benefit of the “digital gold”. There is more room to use assets that have little correlation with traditional investments. Most investors do not have Bitcoin or any other cryptocurrency in their portfolio. However, times have become more desperate. With desperate times, rates of innovation can increase-even in traditional finance systems.
Even in the cryptocurrency sector, a significant amount of assets could be waiting on the sidelines. A report reveals that $3,000,000,000 in stablecoins is sitting on exchanges. What this means for Bitcoin is that $3,000,000,000 in investments could enter the industry in the future as more people choose to reenter the markets. With the Bitcoin halving event taking place in the coming months, the reentry of investors could take place much sooner than expected. The fact that this money is sitting on cryptocurrency exchanges means that it can be easily converted to Bitcoin or other similar digital assets which could, in turn, increase the value of the cryptocurrency.
According to the CEO of blockchain data startup, Messari,
“There’s now $3 billion++ of stablecoins sitting on exchanges. If investors wanted to cash out of crypto completely, they would have withdrawn funds to banks. Instead, we’ve got more dry powder held in the crypto economy than ever before. In both real and market cap % terms.”
Even if mainstream adoption of Bitcoin does not take place as quickly as expected, there are investors on the sidelines with significant amounts of stablecoins that could be converted to Bitcoin, the most in-demand cryptocurrency in the world.
Cash as King
For those who do not consider Bitcoin as an investment, it can serve as insurance. While the utility of stablecoins as safe-haven assets may seem more clear, Bitcoin’s volatile nature often affects public perception. The volatile nature of Bitcoin prices in the past has scared many people away but the fact remains that it has been more profitable than many other assets and currencies during its lifetime.
Cash remains king. If a debt crisis occurs (which seems very likely) people will need to liquidate assets to pay debts (whether or not they own Bitcoin). Bitcoin would have to be sold at prices required to pay off debts. As a result, liquidity could fall, subjecting the cryptocurrency to greater liquidity risks and speculation.
Analysts suggest that this is a falsehood. While there is a risk that people will sell bitcoin in hard times, past records show that people in Cyprus, Iran, Argentina, and Venezuela bought more Bitcoin during hard economic times.
Timing of Bull Cycles
The timing of bull cycles and bear cycles also needs to be considered. When Bitcoin prices rise, the users of Bitcoin also grow, allowing a lot of holders of the cryptocurrency to sell portions of their cryptocurrency. As new money enters the market, more experience holders may try to force newbies to sell low. Such actions taken during a recession could force weak hands to let go of their Bitcoin for disposable income. Essentially, less experienced traders in the markets are more likely to let go of their Bitcoin holdings during a recession than more experienced holders of Bitcoin who remain confident in the long-term utility of the cryptocurrencies as well as the benefits of investing when prices are low.
In a larger context, a cryptocurrency renaissance is upon us. The digital economy is growing while faith in fiat and traditional monetary systems is dropping. A movement is behind Bitcoin that will not be stopped. It transcends generally accepted notions of economics. To many, it is a lifeline, not a choice.