The COVID-19 pandemic has affected the lives of nearly everyone in the world. Millions have been personally affected by the virus itself and millions more have lost their jobs due to the pandemic’s disastrous effect on the economy. As with any other type of crisis of this magnitude, governments and central banks will use their powers to manipulate the currency in an attempt to help those affected and to stimulate a severely disrupted global economy. The increase in money supply will, all other things being equal, reduce the value of national currencies. With the Bitcoin halving event occurring in the middle of May, the supply of Bitcoin will actually be slowing down. These events are coalescing into a great opportunity for profit by escaping the devaluation of fiat currency and by investing in Bitcoin.
COVID-19 as Opportunity
If you like this article, read and find out how Bitcoin protects you from Inflation: Is Bitcoin A Safe Haven in Times of Crisis? By Aaron Koenig.
As horrible as the pandemic has been on a social and national scale, it represents opportunity. It represents a chance for Bitcoin to gain in popularity as a mainstream store of value and medium of exchange. As the printing presses of the central banks continue to churn out more and more money, Bitcoin’s decentralization and limited supply make it an attractive bulwark against the currency devaluation that is to come.
The goal of governments and central banks when they feel that an economy is experiencing a slowdown is to stimulate the economy. The way they do this is by pumping more money into the economy. The only way for a national currency to expand is through the devaluation of that currency. Through direct stimulus payments, lower interest rates and quantitative easing, central banks and governments essentially play a shell game, decreasing the value of the currency and pumping out new currency in the hopes that the recipients of the money will spend it.
Risks of Government Response to COVID-19
In times of apprehension like these, many consumers are fearful to spend money. Many are also spending their stimulus money on necessities like rent and food. If the recipients of stimulus save it or spend it on necessities they would otherwise be unable to, it is not really stimulating the economy—it is merely keeping it afloat. Too much saving can lead to a slowdown in the economy. This slowdown causes sellers to reduce their prices in the hopes that it helps move their merchandise. This can lead to deflation, which is the opposite of inflation. In deflation, the value of currency actually increases and causes prices to generally go down. If the stimulus gets turned into savings, or merely keeps the rent paid and groceries purchased, it will likely spark central banks to take more action. The collapse of oil prices in late April did nothing to assuage concerns of deflation.
In March, the U.S. Federal Reserve lowered its interest rate to 0.25 percent. This meant that there was little room left to use interest rates as a tool, without going into the negative. Speculation has begun that this is exactly what the Federal Reserve may do. Negative interest rates mean that financial institutions would actually earn money by borrowing from the Fed. It also means that savings accounts would pay much less, even opening up the potential for banks to charge interest for the privilege of holding your money. Lower interest rates will discourage saving and encourage those with cash to seek a better investment—negative interest rates do that even more vehemently.
If deflation becomes a more and more serious concern for central banks, it could spur a massive increase in the money supply. It is hard for anyone to tell how much stimulus a fearful economy requires—including economists. During a crisis as dynamic as the COVID-19 pandemic, where conditions and the perception of them can drastically change in the course of a few minutes, it will be very delicate work to increase the money supply only to the level that is needed, without going too far.
Bitcoin Halving and its Effect on Supply
Bitcoin was conceived during the financial crisis of 2007-2009. You might say that Bitcoin was built for times like these. Part of Bitcoin’s philosophy is strict emission control. In other words, the supply of Bitcoin is strictly limited. Only 21 million Bitcoins will ever be mined. Bitcoin is designed to effectively decrease the output of its supply every four years. The next halving event in May just happens to coincide with a potential for massive increases in the supply of national fiat currencies. Bitcoin already stands to gain in value from its disciplined supply policies as contrasted with the present trend in fiat money supply. This 50% decrease in the supply output of Bitcoin greatly multiplies Bitcoin’s already amazing potential to increase in demand.
While active cases and deaths are decreasing, the COVID-19 still holds massive potential to affect the world. As countries attempt to restart their shattered economies, central banks won’t be able to help themselves from helping their economies through the increase of monetary supply. This monetary supply will likely increase even further as citizens begin saving as much as they can in anticipation of further troubles. The Bitcoin halving event happening in mid-May will decrease the supply output of Bitcoin by 50%. This only enhances Bitcoin’s value as a valuable tool for protecting your wealth in the face of increasing fiat money supply.