But analysts have said it’s prime time to pay attention to Bitcoin and the broader cryptocurrency space as the world goes through what the International Monetary Fund expects to be the worst recession since the Great Depression.
Central Banks Are More Aggressive Than Ever
Despite the roaring recovery in the S&P 500 (and Bitcoin for that matter), many facets of the global economy remain in recession, with dozens of millions unemployed, consumer spending down, and a global supply chain that has come to a screeching halt.
It’s an unfortunate fact that has not been reflected in the financial markets, for some reason or another, though it is being reflected in the fiscal and capital situations of the world’s governments, firms, and individuals.
With cashflows going negative around the world, meaning firms are at risk of going bankrupt and millions more are at risk of losing their jobs, central banks and governments have sprung into action to provide lines of liquidity to businesses across the globe.
No central bank has done this better than the Federal Reserve, the U.S. central bank, which has inflated its balance sheet by over $2.2 trillion in the past two months, a jump of over 50%. The monetary institution has done this through quantitative easing, the act of purchasing assets on the open market as a means to inject liquidity and maintain prices.
This QE has resulted in an exponential explosion in the money supply, though inflation has yet to follow.
It’s Time to Pay Attention to Bitcoin: Grayscale
In a research report published on April 30th, Phil Bonello, head of Grayscale Investments’ research division, explained that this backdrop of aggressive monetary and fiscal stimulus is perfect for Bitcoin to shine:
Today’s macroeconomic environment continues to reinforce that a scarce, digital, non-sovereign form of money may be an attractive place to store value and may serve as a hedge against unrestrained money printing.
Bonello contrasted central banks’ QE with Bitcoin’s block reward halving, which has recently been dubbed quantitative tightening due to the fact that the event drops the issuance rate of the cryptocurrency, instead of increasing issuance as QE and extremely low interest rates do to fiat.
It’s a perfect storm that could catalyze growth in BTC’s price.
Indeed, Teddy Vallee — founder and CEO of Pervalle Global, a global macro hedge fund — found that Bitcoin’s logarithmic chart has a potential correlation with the total amount of assets the world’s central banks hold.
Highest conviction view over the next 1-3 yrs is that CB balance sheets are going in one direction – up. Given this premise, it seems the best form of expression is via $BTCUSD. While the chart below will need to prove itself, it holds weight both empirically and intuitively. pic.twitter.com/GIjOa15hJ4
— Teddy Vallee (@TeddyVallee) April 23, 2020
It isn’t a perfect correlation, but it is clear that there is some relationship forming.
Central banks printing trillions as they have pledged to over the past few weeks, the chart suggests, means Bitcoin will soon rally past its $20,000 all-time high to new heights as the cryptocurrency’s value becomes comprehended by more and more investors.
As Bonello wrote to conclude his report on how the current macroeconomic outlook should impact Bitcoin:
Bitcoin is showing signs of becoming a safe haven while
maintaining an asymmetric return profile. And while the world is seemingly challenging every notion of what is possible, it’s time to challenge another one — that fiat currencies will retain their value. It’s time to pay attention to Bitcoin.