The bitcoin suffered its first major test in the melting event of markets worldwide in the face of the coronavirus pandemic. A cash rush caused a drop in the value of the cryptocurrency and many interpreted that it had failed in that process. And who was already positioned in cryptocurrency, what should they do? Have the fundamentals of the bitcoin changed with the coronavirus crisis?
The answer is: it depends. Each investor makes the decisions he deems most relevant to his/her risk profile. The fact is that the bitcoin is not measured by its ups and downs, but rather by its scarcity at times when central banks are injecting trillions into economies to follow the crisis. And those fundamentals have not changed.
Many traditional economists don’t think this massive injection of money into the economy is healthy, as a Forbes article reports. They say it is more difficult to remove money from the system, which can cause long-term inflation.
The world’s central banks are being forced to consider extreme options due to the lingering effects of the 2008 global financial crisis, with many of their less radical political tools still in place.
Money injection into economy favors bitcoin fundamentals
For the co-founder of the Morgan Creek Digital hedge fund, Anthony Pompliano, it is increasingly difficult to have other mechanisms to save the economy. “The U.S. is about to become addicted to this very fast money injection”, he said via Twitter.
Bitcoin, ether and other crypto do not need financial redemption or monetary loosening. They only need a handful of servers to run, verify, and complete transactions.
It is worth remembering that the bitcoin was created precisely in the wake of the financial crisis of 2008, in which the financial market showed that it did not reflect the correct fundamentals of the situation. “The bitcoin was created for these events”, said Keld van Schreven, co-founder and managing director of blockchain investment firm KR1.
“Bitcoin, ether and other crypto do not need financial redemption or monetary loosening. They only need a handful of servers to run, verify, and complete transactions. They eliminated the weakest link (USA). It just makes it stronger” , he adds.
Therefore, whatever the price of bitcoin is at the moment, the fundamentals of it remain the same. It cannot be artificially driven by central banks or governments – it will be supported only by increased demand. Moreover, over time, the supply of new bitcoins falls rather than increases, causing it to have controlled and predictable inflation, without the possibility of interference from central banks.