Opinion: How do bitcoins respond to governments’ trillion-dollar stimulus in economies?

By  Maya Vujinovic

RIO DE JANEIRO, BRAZIL – (InfoMoney) I have lived and worked on five different continents over the past few years and it has led me to reflect that we can’t tell people to think about something specific, but we can tell them what to think about.

What we have seen in recent weeks is frightening for ordinary people, the majority of the population. The US$1.9 trillion aid injected a lot of talk and fear, and on the other hand Bitcoin (BTC) maximalists believed that this injection would just drive up the price of BTC.

So is US$1.9 trillion too much? The question should be: Too much for what?

Is it too much for supply and demand? Yes. Is it too much for the real needs? No. Is it good in the long run? Probably not.

There is a monumental wealth disparity, and most people will say that what the Federal Reserve (Fed) is doing is crazy. Yes, in some ways it is, and in other ways it is not, because there is a huge economic need. Is it the absolute best way to solve social problems? In my opinion, no, but without the stimulus it would be worse.

This is also not good for any company whose value is based on cash flow or anyone keeping cash, since those who have fixed income securities or cash will have to pay for this injection of aid later.

In the end, it’s pretty simple: if you are printing money, any stock of value is destroyed, and so the Fed is destroying wealth in the long run while boosting it in the short run.

So where does Bitcoin fit in? In fact, the only assets that become very attractive are those like Bitcoin, rare, collectible works of art whose value grows and which are not easily depreciated by an injection of more money by the government.

Bitcoin has already proven itself over the past ten years. First, it has not been hacked; second, it has gained a monumental following; it has the power of an ecosystem or digital network, which cannot be underestimated in any way, and it has become an alternative store of wealth.

However, having worked with technology since 2008, I can also argue that the rising price of a thing does not mean it works.

Bitcoin still has a lot to work out, such as the power plays between carriers and miners and the actual scalability of its use by ordinary people on a daily basis.

However, that should not be the argument or the need for Bitcoin since there are other ways to pay digitally. I don’t doubt for a second that digital currencies are here to stay and that many forms of payment and value transfer will be used and, I hope, will benefit the majority.

Digital goods will just keep attracting attention as we have entered headlong into a digital economy and there is no going back. Since 2008, I have been working on payment platforms in Africa and Latin America and have seen exponential growth in digital payments. One thing is certain: the return on these assets has been constant and growing, and it is not going to stop.

Some would say that the stimulus package is the reason why the price of Bitcoin has risen. I don’t think that was quite the case. But changes take a while to propagate into the economy.

The current money transfer system is not very efficient, people take time to transfer cash currency to cryptocurrency brokerages and buy Bitcoin. So we may only see the effects of this in a few months.

Bitcoin has appreciated in value without being that popular, but the rise has gained momentum since the start of the Covid-19 pandemic, and that has several reasons. With more dollars entering the market, the price of assets such as financial securities, art, real estate (to some extent), and Bitcoin will continue to grow.

On the other hand, the highly inflationary backdrop will encourage more institutions to look at Bitcoin. For example, if you are in Argentina and the exchange rate drops from 4 pesos to 1 dollar, there is no manager in the country who can generate cash unless you exchange it for scarce goods like Bitcoin and collectibles.

A new survey by Mizuho Securities found that two out of five recipients of the stimulus aid plan to invest at least a portion of the aid amount in Bitcoin and stocks.

But is that smart investing or just herd mentality and just because people have access to these digital tools? I believe that most fall into the second option and that many lack the knowledge to make the best bets fast.

I can’t tell anyone what to do, but I can encourage everyone to get informed and educated, because one thing is certain: the stimulus is a reaction to a reality that we are facing.

The global wealth disparity is only increasing and is going to create a very uncomfortable environment in many places in the world. I would encourage a system in which people educate themselves on how to invest their salary and double their money, rather than the other way around.

It seems that Bitcoin has offered some appeal to the masses and that digital currencies and assets can provide a way for the majority to participate in this wealth creation.

I have been working with digital goods since 2009 and every year people ask me, “Should I buy it?” And the answer is always yes.

Source: Infomoney