Despite the recent recovery seen in the value of Bitcoin, the confidence many investors had in the cryptocurrency asset class has weakened over the past few weeks due to the “Black Thursday” crash of March 12th, during which BTC lost 50% of its value within a 24-hour time period.
This is evidenced by the open interest data of the CME’s Bitcoin futures and of Bakkt’s Bitcoin futures, which have both dropped by around 50% since the start of the month, indicating less interest. And anecdotally, this writer has seen some Crypto Twitter personalities capitulate, exiting the market after the cryptocurrency market fell off a cliff.
But, there are some investors that have only been bolstered by the crash. One of these investors is Mike Novogratz, CEO of Galaxy Digital and ex-partner at Goldman Sachs, who said despite the “velociraptor” that brutalized Bitcoin earlier this month he continues to buy.
Top Investor Is Scooping Up Bitcoin At Current Levels: Here’s Why
Speaking to CNBC in a Monday television interview, Novogratz said that he has been buying the dips in both gold and Bitcoin — two assets that some analysts say fit into the same umbrella of “safe-havens” — for one key reason: central banks have started to “run amok” with their policies amid these times of economic distress:
If there was ever a time — debasement of fiat currencies, monetization of trillions of dollars of debt, this is the time for Bitcoin.
This was presumably in reference to the following attempts by central banks around the world to reinflate their economies after the world has been struck with a massive, still-ongoing supply-demand shock due to the coronavirus outbreak:
- The European Central Bank last week announced its intent to purchase 750 billion euros worth of government and corporate bonds to help circulate cash liquidity in the economy, which should help businesses ease the financial damage they’ve taken due to the coronavirus. Its policy interest rate remains negative at -0.5%.
- The Federal Reserve on Monday made history, announcing that it will be buying any value of Treasuries, mortgage-backed securities, corporate debt, and local government debt to ensure the “smooth market functioning and the effective transmission of monetary policy to broader financial conditions.”
- The Bank of England pledged that it, much like the United States’ central bank, will be offering unlimited amounts of capital through cash facilities for businesses to help stave off an economic collapse.
- And much much more.
It’s All About Inflation
But what is Novogratz expecting with central banks running amok? Why is the investor buying Bitcoin now?
Well, it’s all about inflation.
Over the past two decades, inflation, as been defined by the government’s CPI metric, has been relatively low around the world. In the U.S., it’s been
The thing is, with the influx of dollars into the economy as laid out above — a byproduct of low interest rates, free (helicopter) money, and trillions in liquidity injections — some see a high likelihood there will be too much demand for too few products, which should contribute to higher inflation.
Case in point: BitMEX Research wrote in a recent report that the ongoing influx of monetary and fiscal stimulus could be Bitcoin’s “biggest opportunity” to shine in its relatively short existence thus far:
“In our view, in this changed economic regime, where the economy and financial markets are set loose, with no significant anchor at all, not even inflation targeting, it could be the biggest opportunity Bitcoin has seen, in its short lifetime.”
Indeed, unlike the U.S. dollar and other fiat currencies, Bitcoin is an asset with a fixed supply issuance curve that eventually ends at 21 million coins, the hard-cap on the BTC that can ever be circulated on the blockchain.