Bitcoin’s Worth in the Age of Coronavirus
On January 1, 2020 (i.e., pre-pandemic), one bitcoin was worth $7,174. On January 31–when the United States declared a public health emergency in response to the spread of COVID-19–a bitcoin clocked in at $9,388. As of writing this, it’s over $11,100. (10/29/2020 UPDATE: Now at $13,400)
The United States has been in a pandemic-driven recession since February, which seems a prime opportunity for Bitcoin to boom. Yet it’s had its fair share of ups and downs, just like other currencies, rising as high as $10,364 on February 14 and dipping as low as $4,944 on March 16. Meanwhile, in Forbes’ coverage of Morgan Creek Digital’s conversation with Social Capital CEO and former Facebook executive Chamath Palihapitiya, Palihapitiya discussed how the current economy could lead to a single bitcoin worth $1 million or more.
So is Bitcoin bullish in this economic climate or not?
The answer: It’s complicated.
Dan McArdle of Messari, a cryptocurrency news resource, put it this way on Twitter: “Bitcoin is a hedge against inflation & loss of confidence in fiat, NOT a hedge against a typical recession.”
Basically: A recession affects all currencies in circulation, whether it’s fiat (i.e., backed by a government), commodity (i.e., backed by gold or other physical resources) or crypto. But a loss in confidence in a specific currency, such as the dollar, does not affect all currencies. The latter would likely make cryptocurrency an appealing alternative. Or as McArdle explained in this Wired article: “In an environment where people begin to question the monetary system, alternatives such as bitcoin can draw a lot of attention.”
Currency’s Current Situation
So where does the dollar–and Bitcoin–stand? Let’s look at some points of interest.
- The U.S. dollar is the world’s primary reserve currency, meaning other countries have stockpiled it because of its stability and redeemability in world commerce. However, there’s no guarantee it will remain the world’s reserve currency.
- Despite the pandemic’s effect on the economy, the U.S. dollar is still considered a safe asset.
- However, the United States government is pumping money into the economy at an accelerated rate due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides financial assistance to families, small businesses and states to minimize economic fallout from the pandemic. A government printing and circulating money at a pace that exceeds economic growth can cause inflation.
- Inflation can decrease a currency’s value and lead to the public losing faith in that currency. A recent example of this is Zimbabwe, whose Zimbabwe dollar was worth more than the U.S. dollar upon its introduction in 1980. The country went through a period of hyperinflation, and in 2015, you could exchange 35 quadrillion Zimbabwe dollars for a single U.S. dollar.
- This magnitude of devaluation is unlikely to happen to the U.S. dollar. Yet, it would take far less to prompt worldwide concern for the U.S. dollar, a longtime symbol of paper-money stability. If concern turns into a loss of faith, then other currencies could take the U.S. dollar’s place as a global go-to. Enter Bitcoin. Certainly, a currency untethered to a government that helped devalue its own currency would look pretty appealing at this juncture.
Indeed, our current monetary system is weakening, according to Palihapitiya, making room for Bitcoin to “really emerge as a flight to safety.” In fact, Palihapitiya sees an opportunity for Bitcoin to someday take the place of the dollar as the global reserve currency.
What’s the Final Word?
Currently, the dollar is too stable for Bitcoin to appeal to the masses over the dollar. But we’re heading toward a time, some believe sooner rather than later, when this may no longer be the case.