Bitcoin has again broken through the $6,000 mark upwards. After a strong sell-off last week, the price has caught around the $6,000 mark. The sharp rise was accompanied by news from the USA that the FED (Federal Reserve, the central bank of the USA) will take further measures to stabilize the entire financial market.
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Bitcoin correlation to the stock market increases again
Bitcoin seemed to have broken free from the clutches of the downward slide in other financial products over the past few days. However, the sharp rise over the weekend to as much as $6,800 was short-lived. Already on Sunday, March 22nd, the price dropped below the $6,000 again. On Monday, March 23rd, however, BTC showed itself to be extremely correlated with the rest of the market. Especially with the DAX and S&P 500. The price movement of Bitcoin is identical to that of the S&P 500.
Bitcoin’s first pump went along with the DAX. The market was already open and could react directly to the announcement of the FED. After that, the S&P 500 took over. From the time when trading with the S&P 500 resumed, the Bitcoin price obviously linked to it quite strongly. The correlation seems to be exactly 1. How and if the Bitcoin price will continue to correlate so strongly remains to be seen. At the latest, during the weekend, when the stock exchanges are closed, we will find out how sustainable the current movement actually is.
The endless currency devaluation of the central banks
The FED has just announced that it is taking even more money that comes out of nowhere to support the various markets.
“The coronavirus pandemic is causing enormous difficulties in the United States and around the world. The first priority of our nation is to take care of those affected and to limit the further spread of the virus. While great uncertainties remain, it has become clear that our economy will face serious problems. Aggressive efforts must be made in the public and private sectors to limit the loss of jobs and income, and to promote a rapid recovery once the problems subside,” the FED said in its statement.
At first glance, this measure appears necessary to prevent the world from falling into an even deeper crisis. The FED reaches into its FIAT pot and throws money at the various markets and market participants until the crisis is overcome. The measures will certainly be extended if the ones taken so far are not successful. This will inevitably lead to unlimited currency devaluation, but, in turn, should strengthen Bitcoin in its fundamentals.
Chris Rupkey, the Chief Financial Economist of MUFG Union Bank commented: “The Federal Reserve is no longer just the lender of last resort, it is now the buyer of last resort. Don’t ask how much they will buy, this is really a quantitative easing into infinity.”
Bitcoin as a possible option in hyperinflation
Every time the FED injects money, the US dollar is devalued and even faster than usual. In the end, we may be able to gain some time with the central banks’ measures. However, at the same time, we must fear the devaluation of the FIAT currencies. At worst, this could result in hyperinflation. So if the world’s move in that direction, which looks very strong at the moment, people will no longer flee into FIAT, as is currently the case, but into other assets to put their savings in safety.
When the panic starts in the direction of FIAT flight, people will no longer have so many options. Precious metals such as gold and silver are already physically only available at a 20-50% premium. This will certainly continue to deteriorate in the panic. Access is therefore no longer available for many – already now. So there are not many options left.
One of them could be Bitcoin. Furthermore, the Bitcoin market cannot simply be stopped. It is traded 24/7. Therefore everyone has the possibility to enter and exit the market at any time.
BTC as a savior in times of need?
BTC has similar characteristics to gold and is even better positioned in some areas. It is precisely limited and no more Bitcoins can be created by putting more energy into it. With gold and silver, the reserves are far from exhausted and if necessary, mining can be increased for years.
Bitcoin is the hardest asset of all. Therefore, it is almost obvious that Bitcoin could be a possible investment in times of hyperinflation. After all, this is exactly the reason why BTC was created back then.
It remains to be seen whether hyperinflation will occur at all and whether BTC can play a key role in this. There is something good about the crisis. People are currently being asked to think about their financial security and take measures. In times of need, people reach for the last straw and maybe that last straw is Bitcoin.
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First published in CRYPTO MONDAY, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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