Could the COVID-19 crisis become a catalyst for a new crypto bull market?
Many economists, including the Federal Reserve Chairman Jerome Powell, say that this crisis is the worst in the last 100 years. If the crisis is worse than the Great Depression, then it’s definitely something very serious. The Great Depression is remembered for its universal poverty, but at least, some people had jobs and the economy wasn’t halted, just in the bad state. Right now, the economy is in limbo, and it’s unclear when all the countries are going to lift the quarantine. Many companies are on the verge of bankruptcy, and some of the big companies have already filed for it. For example, Hertz, which was in business for 100 years, filed for bankruptcy in late May 2020. Macy’s, one of the largest US department store chains, seeks to raise $5 billion to avoid going bankrupt. What’s the response to this? Printing money.
Is it possible to print money infinitely?
Of course, governments can print as much money as they like. Their debt is rising, and they have to pay more and more for this, but it’s the only way to support failing economies. This money printing has some severe consequences, the main one is increasing inflation. The more the inflation rises, the less the existing money costs. This means that all savings, all capitals and investment portfolio also lose in value. Governments make mistakes in ruling their countries, and their citizens have to pay for this. But there’s nothing that could be done about this situation, and investors have to adapt as this is their new reality. To save the value of their portfolios, investors change their strategies and look for new types of assets that might become defensive during the crisis. One of such assets is cryptocurrency.
Cryptocurrencies are the literal answer to infinite money printing. While all fiat currencies follow an inflationary model, cryptocurrencies are based on a deflationary model, meaning, that their supply becomes more scarce over time. For example, Bitcoin has a finite amount of coins, 25 million, and with the growth of its popularity, more and more people will have a desire to buy some. It won’t be possible to print more, so the growing demand will meet the fixed offer, and the price of Bitcoin will grow. Of course, it doesn’t mean that it will definitely happen, but historically we see such price action, and also there is a lot of signs that this trend will continue. What signs? Mainstream finance coming to crypto.
Large funds buy crypto like there’s no tomorrow
Right now, many funds dig deeper into cryptocurrencies and investors allocate more and more money into crypto-oriented funds. For example, Grayscale Investments has been buying 34% of the whole supply of the new Bitcoins for the last 3 months. That’s roughly $30 million invested weekly during the first quarter of 2020. The total value of Grayscale assets reached $3.8 billion. If we compare this to the last small crisis in the oil market in 2014, we’ll see a huge difference. The total amount of Bitcoin investments reached $314 million that year. But in 2014 it was just rather an exotic instrument for very risky people, now it’s a popular alternative asset class. Many fund managers understand that Bitcoin and many other cryptocurrencies such as Ethereum aren’t going anywhere, so it’s probably a good time to stock up while it’s very far from its previous highs.
What’s next? Even while the restrictions and the COVID-19 lockdown are slowly lifted, it doesn’t mean that everything will be fine soon. Since the beginning of the pandemic people around the world started to save money and they don’t plan to spend it in the near future. What does it mean for the economy? All commercial companies still won’t be making profits and would need some support. So the money printing will continue. The US Fed Reserve and the EU Central Bank indicated clearly they would issue as much money as necessary. All fiat currencies will continue to lose their value, unlike cryptocurrencies. That’s the reason why the new bull trend in crypto may start.
How to keep the value of your savings intact
It might be a good idea to keep some of your money in cryptocurrencies, which won’t be affected by inflation at all. But is it doomed to simply stay in your account without making you any profit? Luckily, nowadays you can use it to make deposits in the same manner as you might deposit it to a bank account. For example, CoinLoan is a platform where everybody can deposit crypto earning interest on it and take loans in crypto. Thus, you can not only save the value of your portfolio but also make some profit on it. It’s really important in these times of uncertainty. Statistics say that nearly 1 out of each 5 people lost their job, and we’re definitely going to see more problems regarding COVID-19 lockdown, trade hassles between China and the USA, more bankruptcies and market downturns. But the smartest investor always comes prepared and has plans for every outcome. So we wish you to be prepared, not to lose money and also not to miss trends.