Opinion: Bitcoin can only be used to deal with a special crisis, that is, the potential collapse of the fiat currency system

Source: LongHash

Editor's note: The original title was "View: Bitcoin is not a safe haven for new crown pneumonia, but a safe haven for fiat currencies"

In 2019, many people think of Bitcoin as a "safe haven asset." However, by 2020, this "safe haven" has failed. Earlier this month, when the global economy was in turmoil with the outbreak of the new crown virus, the price of bitcoin was nearing its end in a week. Traditional markets are full of sadness.

Having said that, in any form of economic turmoil, Bitcoin should not be considered a safe haven asset, and its performance in 2020 shows that it is not a safe haven. On the contrary, Bitcoin can only be used as a hedging tool to deal with a special crisis, that is, the potential collapse of the fiat currency system.

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Whether it is a war or a fiscal deficit, the government will choose high inflation to cope with the expenditure of emergency projects when dealing with crises. The side effect of this decision is to dilute the supply of money and reduce the value of people's deposits. The simple theory of supply and demand tells us that when supply increases and demand remains the same, prices fall.

Concerns have now suggested that the Treasury mint $ 1 trillion in coins to sell to the Federal Reserve, so this concern has taken on new meaning. In addition, the Fed made it clear that they have the ability to create unlimited cash flow to deal with the new crown crisis.

Of course, Bitcoin does not need to worry about this problem: it does not have a central agency to issue additional currencies and depreciate the existing circulation, so it is somewhat protective against the above crisis.

What is happening with Bitcoin?

One of the main arguments about Bitcoin is that government spending in the United States and elsewhere has gone out of control, which will eventually cause the depreciation of the US dollar and other fiat currencies.

Tetras Capital's Brendan Bernstein gave a speech on the macro environment of Bitcoin when he attended the 2019 Bitcoin Conference. He said that the US dollar, the world's most prominent fiat currency, will eventually be rapidly caused by the rise of socialist ideology, negative interest rates, and fiscal deficit spending Expansion of supply and significant depreciation.

Bernstein explained: "Quantitative easing is a currency crisis and we are about to go backwards."

Messari co-founder Dan McCardle also explained in a Twitter post in June 2018 why Bitcoin will behave like this in the new crown epidemic.

Billionaire investor Ray Dalio has also shared his beliefs, and he believes that the nightmare identified by Bitcoin bulls may come true, although he did not think at the time that the cryptocurrency would be a safe haven for most investors assets.

But in the new crown epidemic, the story is another story. Now cash is king, and only fiat money can be used to pay for necessities such as rent and food. From the perspective of short-term price stability and purchase of materials, Bitcoin is still unable to compete with the US dollar.

The recent market performance is just an unexpected collapse in economic activity, not the end of the fiat currency.

However, this global epidemic is likely to continue the trend mentioned by Bernstein at the 2019 Bitcoin Conference, that is, the government will advance a lot of money that they do not have at all, eventually leading to the depreciation of the US dollar and other fiat currencies. The only question here is how much the epidemic will have on existing fiscal deficits. In any case, it will not affect Bitcoin's monetary policy.

In short, Bitcoin (and gold) is only a hedging option for the global fiat currency system, not a safe haven for various economic crises. Despite the recent plunge in Bitcoin price, it still plays the role of digital gold to a large extent, because it is not affected by potential political factors in terms of issuance rate and personal control. This is also an important value proposition of Bitcoin and its network.

It is worth noting that within a few hours of a global top foundation proposing that it may require US $ 26 trillion in stimulus spending to help people survive the current economic turmoil caused by the new crown virus, the price of Bitcoin has rebounded. However, correlation is not sufficient to explain causality.

Nevertheless, the recent economic crisis is not the real test of Bitcoin. If the government really prints a lot of cash to deal with the new crown virus and the next 10 years of life, then we may be able to see the real test of Bitcoin as a safe haven asset.

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