With global markets in turmoil and more volatile than ever, traders are concerned with how the changing economic environment may impact Bitcoin, gold, and the dollar. The Fed’s $4 trillion dollar injection in an attempt to save the economy could cause hyperinflation that dramatically affects the value of these assets.
The uncertainty surrounding the future of finance has brought record-breaking volatility to markets, making it more important than ever to take advantage of the risk-mitigating tools such as stop-loss orders and up to 1000x leverage found on advanced trading platforms such as PrimeXBT.
These tools can assist in traders turning risk into potential profits, and turning the recession into an opportunity.
To get a better understanding of how the recession and Fed’s stimulus could impact Bitcoin, gold, and the dollar, here’s a rundown of what’s happened thus far, and what to expect in the future for these unique assets.
An economy on the brink of recession
The global markets find themselves in a very testing time at the moment. Not since the 2008 financial crisis has the world seen such efforts to try and right the global economy amid a pandemic of epic proportions. The COVID-19 outbreak has, in many respects, crippled the world’s economy overnight with orders for people to stay home, and to abandon non-essential work.
This COVID-19 outbreak also comes at a time when the global economy was already in a situation where a recession was looming but it appears that this path may be sped up with the virus outbreak being the catalyst. However, as it stands, the global economy is teetering on a recession rather than fully entrenched in one, and it is taking massive efforts from central banks across the world to try and keep things afloat.
The Federal Reserve, for instance, has designed a massive stimulus program that numbers in the trillions to try and support workers and businesses in this time of lockdown, and shut down, but on a more economic level, the Fed has not been afraid to print money. The Fed’s stimulus program to increase liquidity in the markets has seen over $4 trillion printed — that is money being created out of nothing.
While this certainly does increase liquidity, it is a policy that has many other repercussions in the long run, and can cause a lot of issues for investors and traders. Such mass increase in the supply of the dollar inevitably leads to inflation, or even hyperinflation, whereupon the supply of the dollar debases and devalues its actual worth. Thus, the dollar, often seen as the world’s strongest and most prolific currency, could be worth a lot less when all this is over.
Already we are seeing the impact of this stimulus policy as alternative, and negatively correlated assets, such as Gold and Bitcoin, are reacting to what the Fed has done. These assets are famed for their scarcity with gold, a hard to get resource, and Bitcoin limited to 21 million coins. Unlike the dollar, these cannot be created out of thin air, and are thus good hedges against the debasement of the dollar.
The Gold and Bitcoin markets are showing their worth in a time of crisis, and others proving that while the rest of the market goes down, there are a few places worth investing in the current crisis.
A $4 trillion gamble
There is no getting away from the fact that the Fed has to do something to keep the economy ticking, and the liquidity up. The stock markets have tumbled so hard and fast that some are comparing it to the great depression seen in the 1920 and 30s, and with businesses grinding to a halt, there will be a need for money to be flowing through the economy.
However, the decision to promote this unprecedented stimulus package, which will be used to help taxpayers, as well as bailout businesses — such as the airlines. While the money printing seems to have come in at $4 trillion, the central bank has not put a limit in how much it will keep adding.
In an interview, Minneapolis Fed President Neel Kashkari said there were no risks to the banking system because his fellow central bankers have unlimited authority to create cash in infinite quantities — but this may be a bit narrow minded.
“Your banks are safe, there’s enough cash in the financial system and there is an infinite amount of cash at the Federal Reserve. We will do whatever we need to do to make sure that there’s enough cash in the banking system. So, there’s a range of things that the Federal Reserve could do, we’re far from out of ammunition,” Kashkari said to reassure citizens.
One risk that Kashkari is not addressing is the obvious economic impact that making money out of nothing leads to — hyperinflation. Peter Schiff, a well known gold bug at Euro Pacific Capital who has shared his negative opinions on Bitcoin before, predicts that the latest changes in Fed policy: “ensures that this recession, depression that we’re entering is going to be extremely brutal in the inflation that is going to ravage the economy, particularly investors and retirees.”
Another well known financial advisor, Robert Kiyosaki, better known as the man behind the popular book series ‘Rich Dad, Poor Dad,’ has also outlined the dangers of printing money and creating value out of nothing.
“Lesson 5. SAVE MONEY: RU NUTS? Why save money when QE FED counterfeiting is printing trillions of fake dollars-$82 billion a month to $125 billion a day? Why save when ZIRP, zero interest policy pays losers zero? Save gold-god’s money or Bitcoin-people’s money,” he explained.
For those people looking to make investments in this time, be it savings, or assets, or even trading. The dollar is a dangerous place to put your bets as this Fed policy to keep things afloat could totally ruin the power and the value of the dollar.
But, as Kiyosaki mentioned, there are two very viable alternatives at the moment.
Going for Gold
While the COVID-19 pandemic has had its effects on both gold and Bitcoin, which fell at the start of the crisis along with the stock markets, these two assets are now some of the better performing options available to traders at this time. Gold has always been seen as a traditional safe haven and managed to bounce back well from its brief fall, while Bitcoin is famous for its volatility and often partners a quick drop with an equal quick climb.
For gold, the reason for its return to higher prices amid the crisis is that investors know that it is a good place to keep money at a time like this — not only because of gold’s safe haven potential, but because of fears of the debasement of the US dollar.
In March the number of people buying physical gold on a popular marketplace for the precious metal more than doubled, jumping 113.9% from February.
“With the economy in lockdown and share prices losing 15% inside a month, it’s natural for investors and savers to seek a bolt hole in precious metals. Anyone saying gold has no intrinsic value overlooks its use in all ages and all cultures, as the ultimate store of value,” explained Robert Glynne, CEO here at BullionVault
“Gold may seem productively worthless, but its economic value comes from its ageless social use as a way of preserving purchasing power across time. Physical bullion, unlike a bond or a business, cannot miss a payment or go bust. Nor can it be created at will, unlike government debt or currency.”
While gold is a traditional safe haven, it is also important to diversify even more in a time of crisis such as we find ourselves in today. Gold used to be one of the only options, but Bitcoin has emerged to show it too can act in negative correlation to the global markets.
Bitcoin fell dramatically in the middle of March, but within a week the coin had recouped nearly 100 percent of its losses showing incredible resilience. This is what makes Bitcoin such an interesting and intriguing asset for investors in this time as its volatility can lead to quick returns when the rest of the market is falling, it’s slowly growing.
Bitcoin, like gold, is also an asset that takes special interest in the value of the dollar. It has already been seen in the Bitcoin market when there are additional announcements of money printing, Bitcoin is one of the first to move upwards in anticipation of the dollar debasement.
Bitcoin, with a predetermined supply, immunity from central bank involvement, and decentralization from any state or nation makes it the perfect solution for this current crisis the dollar is facing. The massively flawed banking system was the catalyst that spawned Bitcoin in the first place. As Satoshi Nakamoto wrote himself:
“Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.”
Getting hold of Bitcoin is also not a difficult thing to accomplish in a time of crisis. Gold can sell out, even on digital sites, whereas the Bitcoin market is very liquid. A site like PrimeXBT offers Bitcoin trading across all markets and is entirely simple to use for new Bitcoin investors or old pros at trading.
In fact, PrimeXBT offers options to trade gold and silver, as well as other foreign exchange to hedge against the dollar, such as the GBP, AUD, and CAD. Having the ability to diversify your portfolio away from the dollar on one platform makes hedging against hyperinflation easier, and also makes keeping on top of your investments much better.
You can sign up quickly and simply here.