Bitcoin Celebrates USD’s Loss of Power as The Dollar Records its Worst Month in a Decade
- Bitcoin is shining bright with a new 2020 high at about $11,740.
- Interestingly while the digital asset has been trending up, the US dollar has been declining.
USD first took a hit in mid-March from 102.7 along with all the other asset classes, be it bitcoin, gold, or stocks. But before that month was over, it was back on the rise only to range till May.
But then it yet again started sliding to reach 93 on June 30, although on Friday, it spiked to 93.3 while stocks, gold, and bitcoin all experienced a small pullback.
Earlier this week, even Goldman Sachs warned that the dollar is in danger of losing its status as the world’s reserve currency.
Dollar’s loss in part is due to all the money printing the US Federal Reserve has been doing in response to the damage done by the coronavirus pandemic. While the Fed has added $3 trillion to its balance sheet since February as part of its QE, it also cut down the benchmark rates to zero.
Data showed that the world's biggest economy shrank at a record annualized rate of 32.9% even amidst the unprecedented monetary and fiscal stimulus from the Fed and the US government.
Although the dollar still dominates transactions and currency reserves, its power is weakening. The US lags behind the eurozone and China in the overall volume of imports and exports in global trade.
Unlike the US dollar, bitcoin can’t be printed relentlessly and has a fixed supply of 21 million. On top of this, it doesn’t require physical storage like gold and is censorship-resistant.
Bitcoin is a “schmuck insurance”
Digital assets have been increasingly capturing the attention of policymakers because of the threat they pose to the government's power of money. Governments all over the world are now working on digital versions of their currency. Tom Lee, co-founder of Fundstrat Global Advisors says,
“At the end of the day, trust is really getting broken in the traditional financial system—that’s the theme. The less trust you have in the dollar, the more you want alternatives.”
And gold, which hit a new peak this week and bitcoin which is up 58.8% in 2020, are those alternatives.
Earlier this week, bitcoin broke the key $10,000 level, the last time the digital asset went past five figures, it fueled a frenzy to an all-time high of $20,000.
Before the flagship cryptocurrency crashed in March, it hit this level only for that rally to be snuffed out by COVID-19. It’s to be seen if this time, things will be different.
But what’s different this time is increasing interest from the likes of billionaire investor Paul Tudor Jones who called it an inflation hedge amidst the unprecedented actions from the central banks. Jones revealed that he has between 1% and 2% of his assets held in Bitcoin as protection in a low-interest world. Renaissance technologies flagship fund Medallion also got the green light to invest in Bitcoin futures in April.
According to research firm Kaiko, a bit of bitcoin works as a “schmuck insurance” if the digital asset repeats 2017 like a rally of which much of industry is hopeful of as an estimated 60% of BTC supply is currently being hoarded with 20% lost or untouched.