Before the coronavirus hit, Bitcoiners were looking forward to next month’s “halving” – a once-every-four-years reduction in new supplies of the cryptocurrency – as the primary factor that would drive prices higher, potentially even a 13-fold increase from current levels.
Since the coronavirus pandemic hit, however, the market’s focus has shifted instead to the trillions of dollars of emergency aid and money injections pledged by the world’s governments and central banks. Those are seen as enhancing Bitcoin‘s appeal as a hedge against inflation, similar to the traditional arguments for buying gold.
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However, with Bitcoin (BTC) prices stagnating over the past week in a range between $6,600 and $7,200, well below the level predicted in many investors’ halving-predicated models, some industry analysts have been wondering when, or even if, prices will take off. An even knottier quandary for Bitcoin bulls looms if prices begin to tumble anew.
“I don’t want to say that this is going to be Bitcoin‘s last stand, but it really is going to put the dominant investment narratives to the test,” said Joshua Frank, CEO of TheTIE, a provider of data on digital assets.
An analysis published Wednesday by TheTIE and trading platform eToro showed that mentions of “coronavirus” are now appearing far more than “halving” or “halvening” in cryptocurrency-focused publications:
A related finding was that, since the beginning of March, “gold” is increasingly mentioned in headlines atop stories about Bitcoin:
Early writings by Satoshi Nakamoto, the pseudonymous creator of Bitcoin, show that while the cryptocurrency network was designed to serve as a peer-to-peer electronic payment system, its resistance to inflation was considered a key attribute. Central banks have a long history of debasing their currencies, Nakamoto reportedly wrote in a February 2009 post.
The underlying blockchain network’s original computer programming stipulated that only 21 million Bitcoins could ever be minted. The hard cap, the thinking goes, makes the cryptocurrency potentially more reliable as a store of value than gold, whose supply hinges mainly on the ability or willingness of miners to keep digging.
According to an International Monetary Fund blog post on Tuesday, governments around the world have now committed some $8 trillion to contain the coronavirus pandemic, including higher spending, foregone tax revenue, loans, corporate bailouts and guarantees.
And in a report on Tuesday, Deutsche Bank tallied some $2.7 trillion in balance-sheet expansions by major central banks in the past few weeks. Some of those are tied to accelerated purchases of government bonds and other assets – a type of monetary stimulus known as “quantitative easing,” or QE, that was popularized in the years after the 2008 crisis by then-Federal Reserve Chair Ben Bernanke.
“If QE looks more obviously a cover for unsustainable fiscal policies and especially if the primary function appears to be longstanding debt monetization, currencies will suffer,” wrote Alan Ruskin, a macro strategist for the German lender. “Gold is a natural beneficiary of this latter-stage QE, and looks to be already anticipating this outcome.”
Cryptocurrency analysts have highlighted an increasing correlation between Bitcoin and gold prices. Eyeballing the performance since the end of April, there is a synchronicity, but it’s rough: Bitcoin surged, then fell back, while gold has continued to steadily climb.
Since the start of 2020, gold prices are up 13 percent, close to an eight-year high, while Bitcoin is down 1.6 percent, with its price at just over half of the 2019 market peak around $13,000.
CoinDesk’s Daniel Cawrey reported on Wednesday that Bitcoin trading volumes have subsided following a surge in early- to mid-March, when prices were swinging wildly.
What does that suggest? Are Bitcoin traders beset by a lack of conviction? Or are they unwilling to part with their Bitcoin – HODLing, in crypto-speak – because they think the price is going up? It’s safe to say that there are fewer buyers, and fewer sellers.
In the meantime, signals from the cryptocurrency options market imply that traders see less than a 10 percent chance of Bitcoin trading above $10,000 by December. The other 90 percent of outcomes would constitute a big disappointment for Bitcoin bulls who were betting that the halving would drive prices to $90,000 or higher.