What awaits us on the world markets in the upcoming period and what impact will the global pandemic of COVID-19 have on the price of Bitcoin?
These and other related issues have been addressed by many experts across the "crypto community" over the past few weeks and although many differ in short-term predictions about the development of prices of Bitcoin and other cryptocurrencies, they all more or less agree on the one long-term prediction: we do not have to worry – Bitcoin will survive. But the question is at what price and at what residual value.
The price of Bitcoin is, as we know, extremely volatile and it is in times of crisis that most of the public might think and assume that its price will go down steeply within sales. This premise has its logical reasons as the sharp fall of the prices of financial instruments is a phenomenon indisputably accompanying the economic crisis. Moreover, according to recent developments, cryptocurrencies are noticeably influenced by the atmosphere of world markets. Does this necessarily have to be the case with Bitcoin? The collapse of the financial markets will certainly affect the price of Bitcoin (and has already significantly affected it) but allow me to polemize a little.
Although we have witnessed Bitcoin fall from around $ 9,000 to almost a half in the last 3 weeks, I dare to say that this scenario does not necessarily need to continue. Leaving aside the approaching Halving in mid-May of this year, which, as a highly anticipated event, promises potential Bitcoin value growth and has been spoken about in the community since the second Halving event in 20161, one of the potentially important drivers for growth is – maybe paradoxically – the behavior of central banking authorities.
In this context, the news from the beginning of the week should not be ignored: The Federal Reserve (FED) intends to introduce a series of strong measures to support the economy, including unlimited securities purchases and new loaning programs. The FED said it would purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy. It will also create three new facilities to provide up to $ 300 billion (CZK 7.7 trillion) into the economy. The money should be used for loans for businesses as well as consumers2.
Paradoxically, this FED step could benefit Bitcoin. The logic in the matter is that any quantitative easing of a greater extent (and even more so of the American type) entails precisely the named negative consequences and phenomena that basically led to the emergence of Bitcoin as such and on whose counterparts Bitcoin is built – a currency, that is not a subject to any control, has deflationary nature, no central authority can interfere with – that is what Bitcoin proponents yearn for.
Given the planned interventions of the FED, as well as other national banks, it can be in my opinion assumed that these steps could serve as an incentive to purchase Bitcoin as a result of mistrust of some investors in traditional monetary policy. The drastic fall in the price of Bitcoin and the bleeding of cryptocurrency markets to the very bottom, as some predict, do not necessarily need to occur. What will ultimately decide, however, will be the further development of the pandemic, particularly in the United States of America, which currently has the most confirmed cases of COVID-19, and it is unclear how the world markets will continue to respond to this circumstance and whether (prospectively how much) they will “bring Bitcoin down” with them.
Despite its decentralization it is no longer the true that Bitcoin is completely independent of the surrounding economic events in the world and the collapse of financial markets, as well as the general decline in trade exchange, will therefore surely affect its price. But to what extent will only tell time.
The purpose of this brief reflection is not to predict the Bitcoin exchange rate; the article is not an investment advice or recommendation.
__________________________________________________________
1 The optimism was derived from the previous Halvings, which were always followed by a significant increase of Bitcoin value.
2 Federal Reserve announces extensive new measures to support the economy [online]. BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM, March 23, 2020 [cit. 2020-03-31]. Available on: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm