Are we in a financial crisis? Many people wonder about this as our unemployment rates have reached an all-time high on a global scale. But that’s not all; the COVID19-induced lockdowns have also caused bailout programs to increase the supply of FIAT currencies. In 2020 alone, the US printed 20% of its total USD supply, and massive inflation rates are expected to occur.
Those that compare our current times with 2008 can clearly see the crisis, and thus purchase Bitcoin. But why exactly is Bitcoin a good hedge against the financial crisis? How does it make more sense to buy Bitcoin that to own cash?
That’s exactly what we will be talking in this article. Over the next few chapters we will help you get a better understanding of the way Bitcoin works, Let’s get started
Why is Bitcoin Important In Times Like These?
To understand Bitcoin’s importance we need to take a look at the way 2020 unfolded. Shortly after the official labeling of COVID19 as a pandemic, most businesses were forced to close and the regular cash flow that overpowers our societal standard somehow just stopped. In the meantime, all relief packages were pointed towards bailing out airlines and large corporations while the regular public was forced to stay home and suffer from an inability to work and earn money.
By all means, the past 6-8 months have exposed all the flaws of our financial system. A simple stimulus check won’t help the public return to normal and all those with savings in the bank will see the value of their money decrease more than ever before. So how does Bitcoin offer a solution to this?
Bitcoin is an asset that gains its value through supply and demand dynamics. However, unlike FIAT currency the supply is limited and the release of new coins is predetermined. Due to this, its value increases when more people discover and buy BTC. Naturally, this acts as a hedge against the failing financial system – Bitcoin is based on blockchain technology and you can’t simply arrest or shut down an algorithm. The Bitcoin network operates 24/7 and will continue to do so.
As a result, it is as powerful as gold but a lot more convenient and easy to use. You can store all of your BTC in an intangible wallet on the web – and there’s no one that can do anything about it.
Institutions Finally Take Notice
A small group of people (early adopters) has realized the potential of Bitcoin for many years already. Others that simply entered for the quick profits have already been dismissed. However, we now see lot of institutional investors buying BTC. More recently Microstrategy have bought more than 1 Billion Dollars of Bitcoins, PayPal also started to give cryptocurrency payments service. Binance the top crypto exchange noticed an increase of 46% institution clients on their exchange.
Companies have noticed that their cash reserves will decrease in value over the next year and there is little anyone can do about it. Due to this, companies like Microstrategy, Square, Grayscale, and more, allocate large amounts of their cash reserves into Bitcoin on a regular basis. Recently even Paypal joined the group, buying up more than 70% of the newly minted Bitcoin on a daily basis.
Now, this is all great and good, but try to imagine what would happen if a major company like Facebook, Google, or Apple invested their cash reserves as well. These companies can afford the best financial analysts in the world and, if such a move occurs, the “vote of trust” towards Bitcoin would kick start retail interest. When that happens, there will be absolutely nothing that governments can do, apart from potentially imposing a banking ban on Bitcoin.
This temporary measure could mirror the ban imposed on gold during the 1930’s, which was eventually lifted once governments felt comfortable with their control over the asset. We are not sure that this process could be repeated, but we do know that Bitcoin now has more geopolitical significance than ever, and the first countries that choose to follow the path of the aforementioned institutions will be the ones that come out of this crisis stronger than ever.
Where Are We Headed?
No one really knows what the future may hold. Many people tend to speculate but only a few are well aware of the consequences of our current measures against the pandemic. For now, it is best for you to educate yourself on the concept of Bitcoin, and prepare for what is about to come. Start by reading The Bullish Case for Bitcoin, by Vijay Boyapati, and consider subscribing to The Pomp Letter, by Anthony Pompliano. And if you happen to commute often, take note of the podcast “What Bitcoin Did” by Peter McCormack. All these resources provide great educational material that shed light to the way Bitcoin can help to beat the financial crisis.
This is a Guest post written by Judy Smith. You can contact Judy on [email protected]