After several stormy weeks in world markets, things have gotten a little better. Even though the storms are causing havoc, everything becomes clearer and clearer than ever after the weather has cooled down. Noelle Acheson, an expert analyst, and research director at CoinDisk, recently published an article examining the status of different asset classes in the midst of economic crises and asking whether Bitcoin can Whether or not it is a safe haven for investors.
At the time of writing this article, bitcoin is jumping in price but due to crazy fluctuations, it may be a different situation when reading this article. So the price of bitcoin is not something we look for in a time like this now.
Aside from the chaos that has ravaged everything in the market in recent weeks, there is a clear distinction between different asset classes that is not to be missed.
Certainly, more healing on its own can be good news, but what we are facing right now is not at all pleasant.
Good or bad market conditions
First, let’s see what problems have occurred for each asset class in the past few weeks:
Expected earnings in all types of stocks are drastically decreasing. Several weeks ago in the US and Europe, though weak, businesses were active. But now restaurants and cafes are closed in crowded centers, events are canceled, shops are closed and planes have no flight until further notice. The list of sectors affected by the new virus precautions is long and worrying.
If there is one thing the securities market hates, it is inflation. The chaotic situation of the world has restricted supply chains and will increase production costs, which will inevitably have to be met through rising prices, which means inflation. In the crisis of supply and demand, when you freely inject money into the system to persuade people to spend, you will certainly inflate inflation. In the current situation, nominal government debt yields are lower; inflation will even push positive yields to the negative and drastically reduce them. So:
Those concerned about inflation should know that bitcoin is even more robust than gold.
On corporate bonds, a sharp drop in revenue, along with rising costs, could lead to a debt default, called Nikol.
But what about gold? This traditional asset, always known as a safe haven for capital, is likely to perform well in the medium term, as investors are fully aware of its anti-inflationary properties. Gold has traditionally worked well in societies with low economic returns and low numbers. In addition, its low-profit margins in such societies make it less vulnerable to economic downturns.
Many investors do not see it as a good asset for storing value because of the bitcoin fluctuations. However, gold fans are likely to scrutinize bitcoin more closely, especially after the fall of the precious metal that has changed the outlook of many. Even those who are still in doubt about whether to include gold in their diversified portfolio have become very curious about its digital replacement (bitcoin). After all, there are some disadvantages to this precious metal that aren’t seen in Bitcoin.
However, as stated in Ms. Aachson’s earlier article, bitcoin is not a safe haven either. The truth is, it doesn’t have to be. All assets must be selected to diversify the portfolio, and none of them can permanently keep investors safe from losses. But if we put a percentage of each asset into our portfolio, if one fails, we can rely on the other.
Concern about inflation
Those who worry about inflation should know that bitcoin is even more resistant to inflation than gold. Its limited and pre-planned supply will not be harmed by price fluctuations. However, for gold, a major price spike is likely to accelerate its extraction and increase its supply to the market, which may affect the estimated supply as the more profitable alternative extraction methods become.
Worry about a severe recession
For those who are worried about a severe recession, bitcoin is virtually the only asset that does not directly affect the macroeconomy. Its revenue is not cut off and its supply chain is not blocked. External factors such as energy costs and supply chains can affect the miner’s economy, but Bitcoin itself is making the necessary changes to maintain its network. This means that if the mining companies are closed down, the cost of bitcoin mining will be reduced, which will ultimately lead to the re-profitability of the new miners.
Save Bitcoin for the day
What makes bitcoin beyond a single asset class is that it can indirectly (but not directly) influence macroeconomics. Many variables make this impact but among them a weak monetary policy, currency markets, emerging economies, and populist tendencies. We describe each of these four vectors below:
Weak monetary policy
Central banks around the world, with everything they can to hit the markets, have almost forgotten that the money supply has to be restricted. As the crisis unfolds, the amount of money that will be put into helping markets, citizens and companies will be so high that the crisis of the year 2008 will be negligible. In the past, there were markets that threatened to put the economy in a bad position, but today the markets are in a bad position to threaten the economy. So, nowadays, the usual market calming tactics can no longer be used to stimulate demand caused by forced closures, job loss, and public fears.
Printing money can only help when it is truly in the hands of consumers. Otherwise, it will force inflation into an economy with no means to combat it. The most common weapon to combat inflation is to raise interest rates, which can also lead to default and delayed payments in heavily indebted (personal, corporate or government) societies.
Increasing inflationary pressures and a steady decline in the value of the currency are likely to make people more interested in anti-inflationary assets such as bitcoin and gold that they can use to pay.
Foreign exchange markets
All over the world, investors prefer the dollar, which increases its value relative to other currencies. If imports were not hampered by supply chain constraints, it could lead to cheaper imported goods and to the benefit of the American consumer. But as the dollar grows stronger, US production will become less competitive, and those with dollar-denominated debts (whether individuals, companies, or foreign governments) cannot pay their debts and default. As such, the costs of importing and lending services in other countries will rise sharply and weaken their currencies. That means the dollar is still rising.
A sharp increase in demand for the dollar could make currency liquidity difficult. The Federal Reserve, which also extended foreign exchange channels to other central banks on Sunday, added on Thursday some other central banks, which is a worrying sign because it means that previous measures to alleviate pressure on foreign exchange markets are sufficient. It is not that the Federal Reserve has made such a decision.
Many are now calling for action such as the Plaza Accord Accord Year 2 (an agreement signed between France, West Germany, the US, Japan, and the United Kingdom to reduce the value of the dollar against the Japanese yen and the German mark) by intervening in foreign exchange markets. But achieving economic power follows a government that relies on its campaigns and pushing the boundary wall and prefers a policy of non-interference with the slogan “First America”, far more difficult to overcome the hopelessness of the late “stagnation” era. It is the twentieth century. With the problems in the global monetary system becoming more and more apparent, the question for economists and investors is what the future monetary system will look like. Bitcoin may or may not be part of this solution, but it will be considered a new tool in any case.
The sharp rise in dollar prices, coupled with falling demand, could lead to non-dollar economies to stagnation, which could lead to social unrest. In some parts of the world, we may see widespread vengeance attacks or even political systems change. The orientation of parties involved in the struggle for power can increase interest in a liquid and semi-secret value-store.
While more stable governments will tackle stagnation and social unrest through negotiation and negotiation, there is also the possibility of shifting them towards populist tendencies. These tendencies may be in the form of greater support for health systems or the protection of citizens and companies affected by forced closures and as a result of severe demand reductions.
In order to maintain a balanced budget, it is likely that this backing will have to be offset by tax policies that mean higher taxes. It is true that bitcoin should never be used as a tax evasion tool, but some investors may feel overwhelmed and have to pay a fine, but it’s worth it.
Most importantly, capital gains tax rules are usually not as rigid as high-income tax laws. This is because governments often want to encourage people to invest. This can turn the rich into assets with high returns on risk.
When the eyes of discernment open to the market
In this market, it may not be as clear and as clear as it may be. But just as after a flood, many things may get hurt, but then the dust disappears and things become more transparent, so in the current market. When we look back on the assumptions we had before, we find that investors around the world are more likely to pay close attention to Bitcoin features that they haven’t cared about yet.
This article is not investment advice, and we know that investors work with different risk parameters to make a profit. It’s just a reminder that we all have to question our assumptions, get information, ask different questions, and think about them. Now is the best time to do it.