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What Would Quantitative Easing Do To Bitcoin?


We appreciate the last thing most of you want to read right now is yet another speculative article about what the current situation with COVID-19 is going to mean for Bitcoin. There have been too many of them already, and all of the speculation probably isn’t helping when everybody can see what’s happening right in front of their faces. The harsh truth of the current scenario is that Bitcoin is down. It’s way, way down, and it might be a while before it rebounds and regains even half of the value that it’s lost. We’re in this for the long haul, and it’s probably going to be months before any of us can think about resuming normal trading activities.

The problem with trying to guess what’s going to happen next is that we can’t legislate for any Government’s response to the problem. Different countries are trying different things, and all of those things are affecting the markets in different ways. Instead of trying to make moves to protect the value of your holdings, you may as well throw money into a game on an online slots website and hope for the best. You could win, and you could lose. Some people would say that playing the markets is just a high-brow equivalent of playing online slots anyway. You could even use your Bitcoin to play online slots on some of the more advanced web-based casinos if you wanted, but that’s up to you. You might make some gains. If you did, you’re likely to do better than the value of Bitcoin will any time soon.

Of all the proposals that are currently on the table at the moment, though, quantitative easing might be the most likely to happen, and that’s normally a scary proposition. Wherever there’s quantitative easing, hyperinflation usually follows in its footsteps. For those of you who aren’t familiar with the concept, all quantitative easing (which we’ll refer to as ‘QE’ from now on for the sake of simplicity) really involves is printing more money. The more money physically exists, the more a Government has to spend. The Government can then spend that money however it pleases, and the harsher problems of a recession can usually be avoided.

The big problem that comes along with QE is that it devalues whatever currency is being printed in comparison to other currencies being traded around the world. If the USA started a large-scale QE initiative, for example, the value of the dollar would fall sharply against the Euro, the Yen, and the British pound. That puts the country carrying out QE at a disadvantage when it comes to international trade, with obvious implications for import and export business. That’s why it’s always a ‘last-ditch’ solution, and it’s a method that’s employed so rarely. We last saw it used to a significant degree during the global financial crisis of 2008. It was a classic case of desperate times calling for desperate measures.

Here and now, we’re facing desperate times once more. That means desperate measures will inevitably be employed, and QE will be back on the agenda. This time, though, there’s an important difference. Every country in the world has been affected by problems related to coronavirus. That means every country in the world may be carrying out QE at the same time. If everyone’s currency is being devalued at the same time, the value of that currency compared to every other currency should stay relative. It won’t be a perfect science, because QE isn’t likely to be carried out to the same extent by everybody, but the harm isn’t likely to be as bad as it would be if only one major nation were doing it.

If we accept that QE is inevitable at some point during the next few weeks or months – which seems fair – then many of us will want to know what it could mean for the potential of Bitcoin. While it’s impossible to know for sure, we can give you our best-informed guess on the subject – and our best-informed guess is that, perhaps contrary to what you might expect, it could turn out to be a good thing. The history of QE shows us is that its net effect is to raise prices across every stock and every share in the trading world. There’s no reason why Bitcoin and other cryptocurrencies shouldn’t be involved in that. Whether we still like to think of it as an ‘underground’ asset or not, it isn’t. It’s a trading commodity just like everything else, and some of the same rules do still apply to it.

Every notion that all of us had Bitcoin avoiding problems that affect mainstream financial assets should now have been laid to rest. The crushing loss that the value of Bitcoin has endured since the onset of the coronavirus should have confirmed that to everybody. If crypto can be brought to its knees by the same problems that affect everything else, it follows that it can also be brought back to health by the same measures that rescue everything else. If QE turns out to be good for the global markets, it should also be good for Bitcoin. Between 2009 and 2015, when QE initiatives were all the rage, the value of gold more than doubled. Bitcoin isn’t gold – it’s potentially far more valuable than that – but gold is notoriously unresponsive. If gold prices can be sent through the roof through QE, Bitcoin and cryptos like it should surge.

Although we shouldn’t base the trading habits of the future on the trading habits of the past, there’s something else about investor behavior during QE that’s worth knowing. Historically, whenever QE has happened, investors move their money into assets with a high yield. As volatile as Bitcoin often is, it still meets that description. It’s entirely plausible that investors may choose to go ‘big’ on Bitcoin when QE kicks in, and the price will surge dramatically as a result. Nothing is for certain, but there’s reason to be hopeful.

If you see the introduction of QE proposed on the news in the near future and the tone of the market becomes despondent, don’t despair for your own position. It might turn out to be the perfect solution for your Bitcoin stash.

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