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Bitcoin and Economic Uncertainty: Patience is the Question


As rumors about the promised Corona Millionaire breakthrough that didn’t materialize in recent months have continued to gain strength, the price of the main cryptoactive recently rose above the all-important psychological threshold of USD 12,000, only to fall back below it.

However, as part of this development, the total capitalization of the crypto market reached the impressive figure of USD 386.4 billion, a level that was only reached in 2018. That said, a multitude of factors, such as poor investor perception and lack of regulatory direction, seem to be preventing the market from flourishing as many experts had predicted.

In this regard, Sam Tabar, co-founder of the decentralized P2P Airswap token trading network and former managing director of Bank of America in the APAC region, believes that while there is a long-term structural advantage for Bitcoin, there will be cyclical ups and downs as with any emerging asset class. However, the main problem preventing traditional capital market participants from entering this market is information asymmetry: „Certain players, also known as ‚whales,‘ control most of the market and have created massive market spikes or collapses. Market turns are fine, but massive information asymmetry is not“.

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In presenting his views on the issue, Ariel Zetlin-Jones, associate professor of economics at Carnegie Mellon University’s Tepper School of Business, told Cointelegraph that a major headwind for demand for cryptomoney remains the COVID-19 pandemic, especially as more people begin to face economic uncertainty. He added that it is natural that, during times of uncertainty, not many casual investors are willing to invest their life savings in a highly volatile asset class like Bitcoin.

Facts about the U.S. Dollar
In the midst of the pandemic, the U.S. dollar has so far maintained its strength, in part, because it is the world’s reserve currency, and as long as countries continue to view the United States as a global power, its monetary value will remain strong regardless of recent stimulus packages.

However, in terms of the recent performance of the dollar, there have been some setbacks. To begin with, the U.S. dollar index is currently at 93.2, almost 10% less than its March peak. In addition, because it is a global reserve currency, the dollar tends to increase in value during recessions, complicating assessments of its performance at such times.

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In addition, growing social and political tensions along with the incessant printing of dollars are creating conditions that may form a hyperinflation bubble in the foreseeable future. The situation has prompted some major investors such as Warren Buffett, CEO of Berkshire Hathaway, to cut back on his company’s position in banking and invest heavily in stable deposits of value such as gold.

Buffett’s decision to completely close Berkshire’s position at Goldman Sachs also comes at a time when the financial institution posted its second highest quarterly trading income in history at $13.3 billion, suggesting that Buffett and his associates are not comfortable with betting big on the long-term market prospects of the banking sector. Ryan Taylor, chief executive officer of Dash Kryptonie, told Cointelegraph:

„The United States is not the only country undergoing a massive stimulus in 2020. In addition, in times of crisis, demand for USD tends to increase globally. These two considerations give the U.S. plenty of room to inflate supply without immediately devaluing the dollar. However, we are beginning to see signs that inflation is a risk. Certainly, the massive stimulus began by inflating asset prices, including stock and debt. And last week, the U.S. CPI for July recorded the highest monthly growth rate since 1991.