2020 will see the cryptocurrency either sink or swim

With bitcoin’s price down significantly in the year to date, it might seem odd to treat 2020 as the ideal time for the cryptocurrency to take off. Believe it or not, bitcoin’s true believers are even more bullish than normal, apparently undaunted by the gut-wrenching drop BTC endured two weeks ago. To understand this brewing confidence in the financial environment, we have to take a step back and understand the key narratives that prop up the holy church of Nakamoto:

Even as Covid-19 takes a mounting toll on the world and economic markets, these three key narratives for bitcoin are aligning like the stars.

The same monetary police practices that irked Nakamoto enough to create Bitcoin are in play once more. Just as central banks unloaded their firepower to ameliorate the severe pain of the GFC, they are preparing to do the same again in 2020. This includes quantitative easing — better known as ‘printing money’. With the frightening spectre of Covid-19, central banks are reaching for even bigger armoury, stashed with trillions upon trillions of dollars.

As a side-note — a trillion dollars is such an insane amount of money that research shows we can barely understand what the number means, let alone how to quantify it and apply a critical lens. No wonder the US Congress’ two trillion stimulus package is racking up positive headlines — we don’t really know what that means, but it sure sounds like the government is doing a lot of something to fight Covid-19!

Taking a page from the politicians’ handbook, the Federal Reserve has gone even further in a quest to assuage public concerns and calm the jittery markets. Turning to quantitative easing, the Fed has added trillions of dollars to its balance sheet in a remarkably short space of time, now past $5 trillion for the first time. Analysts have the Fed pegged as likely to rack up as much as $10 trillion on its balance sheet to support markets.

At this point, America’s economic leaders seem ready to throw any inconceivably high amount of money around in order to fight the virus (former Treasury officials are literally referring to an ‘infinite’ amount of cash available to the Fed). And look, there is no shortage of top economists willing to endorse this aggressive approach to offset a perilous economic depression. All the same, it’s no wonder that the ‘money printer go brrr’ meme has exploded as an easy way of conveying the Fed’s trigger-happy approach to QE.

There’s no doubt that bitcoin benefits from a growing awareness that monetary policy for the USD resides with a tiny group of bankers able to control the flow of cash at will.

The bitcoin orthodoxy also suggests that it benefits when the traditional financial markets tumble, as an asset non-correlated with the swings of the Dow. Countless bitcoin adopters have marketed BTC as a safe harbor, not just non-correlated from traditional investments but reverse-correlated (ie, saying the price BTC isn’t just unaffected by drops in other markets, but goes up in value when other assets go down).

This particular narrative is under siege, with bitcoin enduring a nightmarish 50% drop as sharemarkets tumbled on ‘Black Thursday’ earlier in March. Not quite the safe harbor that was advertised, although BTC has — in fairness — retraced up to $6,000. However, the economic impacts of Covid-19 are only just beginning to be felt, and most analysts expect a sustained bear market for stocks amidst eventual recession. On the crypto side, bitcoin advocates are lining up to predict a ‘decoupling’, where BTC starts to display less correlation with stocks (thus becoming attractive to investors in a bear market for stocks).

If all of this fiscal and economic turbulence wasn’t enough, there is one more weapon in bitcoin’s arsenal: the much-vaunted halving, a event that duly halves the amount of bitcoin given to miners as block rewards. A halving only occurs once every four years or so, an Olympic celebration of supply and demand. By unlikely coincidence, the next halving is extremely soon; predicted to take place in early May.

Why does this matter? Bitcoin proponents eagerly point to historic trends, which saw the value of BTC rising significantly after each previous halving. Spend any amount of time following bitcoin influencers on Twitter and you will see any number of stock-to-flow charts for BTC, which track the declining rate of production of bitcoin against the expected rise in price. Most S2F analyses suggest that this year’s halving should see the price of BTC rise appreciably to $100,000 (yes, that’s 16x the current price).