Nothing like a pandemic to get people to show their true nature. Your aunt suddenly won’t open her door for you, and the Federal Reserve wants to print trillions of dollars to “stimulate” an economy broken by decades of poor decision-making.
We’re about to experience the greatest contrast in monetary policy ever seen. As world fiat currencies inflate rapidly over the next ~52 days, bitcoin issuance will cut in half. For people who haven’t taken notice yet, this will be nearly impossible to ignore.
— Will Cole (@willcole) March 22, 2020
A Care Package of Epic Debtor Proportions
The politicians in Washington, DC are in the process of asking for a more than $1 trillion rescue package. The package includes, among other things, a check for every American. Americans have been suffering downtime at work, as companies have either chosen or been forced to close up shop for a matter of weeks.
Meanwhile, airlines and others are asking for bailouts, having suffered from a lack of travel.
All this new money has one primary effect, it makes the old money worth less. Not worthless, but certainly worth less. Every new dollar in the economy lowers the value of every other dollar in the economy by just that much. It’s called inflation, and it’s not a new concept. But we’re about to see more of it than we have in recent times, at a startling pace.
Bitcoin's robust simplicity is a beacon in a hurricane of monetary mayhem ($T airdrops, bank, blue chip & muni bailouts, ZIRP, QE∞, …).
Hard to imagine a better stage for Satoshi's press release about tightening bitcoin's new supply by another full 50%. (Halving = May 13)
— Tuur Demeester (@TuurDemeester) March 22, 2020
As Tuur Demeester says in the above tweet, inflation simply isn’t possible in the design of Bitcoin. Instead, Bitcoin does the opposite: deflates every four years. That deflation is coming soon, in May.
While the combination of inflation in the US dollar and deflation in Bitcoin markets means one important thing (an increased price), the situation also highlights the utility of Bitcoin.
Bitcoin To The Rescue
Bitcoin may not be a hedge against coronavirus, but it will act as a savings instrument while the dollar and other fiat currencies lose value due to inflation. Just because the value of a dollar shrinks doesn’t mean that people will value their Bitcoin less. The price will spike as the value of dollars lowers.
Strangely, because of the way FOREX markets work, the news of the Federal Reserve’s upcoming printing frenzy has led to an increase in the value of dollars. This will be a temporary reaction to movements by central banks. Long-term, the result is exactly what you’d expect: a dollar buys less goods.
All of this has been brought on by a public health crisis called the Coronavirus, a type of flu with no known vaccination. While the disease hasn’t killed that many people, public officials, and media have turned it into a virtual crisis, with people in the US hoarding toilet paper and other staples.
So we can expect a more valuable Bitcoin, but it’s important to appreciate the other value of Bitcoin: no one can print more.
There’s no centralized authority that can suddenly say: “all of the Bitcoin you’ve already earned will now be worth less. We’re in a crisis, after all.” That doesn’t happen in a system designed to perpetuate itself.
It’s hard to tell, sometimes, what the real design of the central bank is. Sometimes it doesn’t serve anyone but itself.
Therefore if we have any reason to be grateful for the coronavirus, it’s that we get to see Bitcoin’s true utility boldly underlined. Bitcoin may have taken a hit, just like everything else, when news of the virus first spread around, but in the long run, it will outperform the dollar, just like it has for years.
