In an analysis published by Investment Strategies, he revealed: “It sounds curious to think of an asset that can cover both scenarios, but we are dealing with central banks that print money in response to any situation. This could be perceived as an elaborate deception to print how much money is possible no matter why. “
“This also brings collateral damage. Printing in good times is harmful to bad investments that happen because money is cheap. While in bad times it slows down their liquidation. An example of this, Japan. Both stages dilute money. and this benefits other dollar-priced assets like Bitcoin. Meanwhile, investors float with expectations of what central banks will do in the futureDurden added.
“So it’s possible that even a small print can cause a huge drop in purchasing power if people expect the print to go crazy. While it is more common for a large print, such as the 40% increase in dollars in 2020, to lead to a small change in value, as people do not expect it to last or do not expect all those dollars to circulate “in the nature “by far,” Durden notes.
To understand whether or not Bitcoin is conducive in a deflationary environment we should identify what type of deflation we are going through:
- Healthy deflation: Driven by technology or productivity improvements
The value of Bitcoin could be maintained and the purchasing power of it could increase afterwards. “Before deflation, Bitcoin could be worth $ 60,000, which is bought for 3 months in a luxury resort. And after deflation, Bitcoin could still be worth $ 60,000, which now buys 4 months at that luxury resort, ”Durden says.
- Unhealthy deflation: Debt creation from deflation
In this scenario, the large amount of money evaporates overnight, meaning it will not be refunded. We saw this in 1930 and 2008. In the latter it was not total since the FED intervened with 1.6 trillion dollars, of which only 1.2 trillion went to the banking system.
Therefore, we must focus on a scenario where governments and central banks take the helm of the economy and lead it through turbulence until achieving good economic growth and inflation of 2%.
Gold as a haven for assets?
Bitcoin has huge underlying user growth – currently running 40% YoY on the number of existing wallets. During the Covid-19 crisis, gold fell from $ 1,900 to $ 1,200. While Bitcoin spent $ 8,000 on the eve of the coronavirus.
There are several reasons that outline Bitcoin with that power:
- Legal currency in El Salvador
- Rapid growth of the Lightning Network
- Demographics, regulation, learning curves of companies and investors.
“By lowering it, inflation is always good for currency hedges, and in this crisis Bitcoin has so far replaced gold as the hedge of choice.. If instead we get deflation, it is good to neutral for Bitcoin but, given today’s Fed, it will probably turn into inflation anyway. And in that latter scenario, underlying Bitcoin growth is likely to ease, avoiding the humiliating fall of gold in periodic obscurity, ”Durden concludes.
There are arguments for both inflationary and deflationary scenarios. Unless the interest is to speculate, the best option to cover yourself in these scenarios would be to buy and hold Bitcoin.
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