Why Bitcoin may beat an upcoming financial crisis?

Saturday 17 October 2020, 7:46 AM AEST - 6 days ago

Why Bitcoin may beat upcoming financial crisis?

As institutions line up to buy Bitcoin, its origin story comes into focus. Most argue that Bitcoin was created in response to the Lehman Brothers bankruptcy and the Global Financial Crisis that followed. However, it is the result of decades of work on peer to peer payments. Since prices are driven by inflow and volatility on spot and derivatives markets, many investors and traders are in this only for turning a profit. However, Bitcoin maximalists and a few on-chain analysts believe that is it may emerge as a successful alternative currency.

Its interesting how the narrative of altcoins is centered on being alternatives to Bitcoin when it in itself is being considered an alternative currency. Whether Bitcoin tackles the economic crisis or not, it is important for retail traders to find out before adding more of this asset to their portfolio. Smart money may pull out faster than it poured in, but retail traders need to test the waters.

The current growth of assets in the economy is far from Feds growth. Except for NASDAQ that comes closest, for the whole period, other assets cannot keep up with the Federal Reserve.

Screenshot-2020-10-14-at-20.12.55.pngAsset Growth YTD 2020 || Source: Ecoinometrics

Based on YTD asset growth, the Fed balance sheet beats it all. Bitcoins performance is closest, closely followed by NASDAQ. Currently, Bitcoins inflation is at 1.8% and the Feds ideal target is 2%. The Fed has seen it as the optimal level of inflation to maintain a healthy economy for years. While the Federal Reserve achieves this by manipulating monetary policy, Bitcoins inflation rate mimics golds stable inflation rate, making it more reliable.

While it may seem counterintuitive at first, Bitcoin is a deflationary currency. Comparing it to fiat currency makes it the ideal hedge against inflation. According to Reinhart and Rogoffs This Time is Different, governments have been inflating cur ...

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