Against the grain of oil, Bitcoin may gain from the developments of the current economic crisis
The current economic crisis is, in fact, a roller coaster. On days like March 12, for example, everything seems to indicate that the path is down, that Bitcoin cannot act well enough as a store of value and that people are losing confidence in it.
Shortly thereafter we have a significant increase in the number of people deciding to hold Bitcoin to escape the crisis. We reported yesterday that a new survey by Paxful indicates that half of American cryptocurrency users are buying Bitcoin to protect themselves from inflation. You can read this full story by clicking here.
With people worried about the devaluation of money, movements of intense low, as seen in oil this week, become more frequent. In the case mentioned, with the decrease in demand, the price dropped substantially, reaching even negative values in Canada.
This leads to deflation, much less talked about and known than inflation. In this process, prices drop a lot, with people believing that the money may be worth more in the future. However, in practice, this causes prices to fall further.
The drop in oil prices are the result of a deflationary process, as pointed out by the analyst Holger Zschaepitz:
The world’s most important commodity is quickly losing all value and pointing toward a much deeper global economic crisis: Oil spirals below ZERO in devastating day for the global industry. The rout will send a deflationary wave through the global economy. https://t.co/UZQeRxY5BH pic.twitter.com/jXKMOKolY0
– Holger Zschaepitz (@Schuldensuehner) April 21, 2020
“The most important commodity in the world is rapidly losing all value and pointing to a much deeper global economic crisis: oil falls below ZERO in a devastating day for the global industry. The defeat will send a deflationary wave across the global economy. ”
Although deflation is bad for the economy, it allows for an increase in people’s purchasing power. In this scenario, the demand for dollars and gold tends to increase. As a side effect, Bitcoin can win.
That is, in the mentioned scenarios, people end up trusting Bitcoin on two different fronts: they buy Bitcoin to protect themselves from inflation, preventing their money from devaluing, and also buy in deflation, to increase their purchasing power and consumption.
Just as gold has seen an important increase in interest during the last economic crises, the same tends to be seen with Bitcoin.
Another factor that reinforces this point is the halving of the asset, which will make Bitcoin more scarce, reducing the reward of mining. That week BTC even started a bullish movement, reaching US $ 7,800, subsequently retreating to US $ 7,500.
With less than 20 days to go before halving, it would be no surprise to see the golden coin rising even more, especially if deflationary processes gain strength in the global economy.