The magnitude of impact that the ongoing COVID-19 pandemic will end up having on the global economy has yet to be seen. It is expected to be a devastating blow and could push the world into a recession or financial crisis when all is said and done. Goldman Sachs Group Inc. has predicted that advanced economies could feel as much as a 35 percent pinch.
This figure is predicted for Q2 and indicates a 35 percent drop from Q1 of 2020 when the virus was only just starting to take root. The expected fall for advanced economies is massive. In context, this prediction is four times larger than what was seen during the 2008 financial crisis, which previously held the record for this metric.
Meanwhile, the cryptocurrency space and Bitcoin, in particular, are still being predicted to rise even amid the global pandemic for a number of reasons. Bitcoin may have dropped in time with the beginning of the stock market fall in the middle of March, but its correlation with global risk assets is weaker than many think.
Chart shows prices of US tech stocks, US treasuries, gold and bitcoin during the current round of panic.
Three of these are strongly correlated during times of stress. The fourth does its own thing.
The chart illustrates how unreliable bitcoin correlations with risk assets are. pic.twitter.com/NDhvvBsnex
— Alex Krüger (@krugermacro) February 24, 2020
In about a month’s time, Bitcoin will undertake its third mining reward halving. This event will put a strain on the mining efforts of the coin, but if history is anything to go on, BTC is expected to rise substantially in value.
While Goldman is predicting a drastic fall in economic strength, many respected cryptocurrency analysts, commentators, and predictors are expecting an upward trajectory after the May halving date.
Beating the Virus is Costing the Economy
The pandemic looks like it may be peaking globally, which is good news as the next phase will be reducing its impact and trying to restart the economy.
However, as New York-based economist Jan Hatzius wrote in a note to clients: “The improvement [less cases] is probably a direct consequence of social distancing and the plunge in economic activity, and could reverse quickly if people just went back to work.”
This has led to central banks, governments, and policymakers mounting an impressive response to try and prop up the faltering global economy in the meantime — but this too comes with its own set of problems. The Federal Reserve has said it can print ‘infinite amounts of cash’ to provide liquidity, but this can lead to hyper-inflation and the debasement of the dollar.
Better on the Bitcoin Side of Things
Instead of increasing the circulating supply in a time of panic, Bitcoin will be slashing the amount of new coins entering the ecosystem in half. This will lead to a decrease in supply, which should bolster demand, and technically lead to increased price action.
Predictions of where this price will end up vary but most see a substantial rise.
James Todaro, head of research at TradeBlock, predicts a price increase in line with increased mining costs.
Following the #bitcoin halving, miners' estimated breakeven costs will rise from ~$7,000 today to ~$12,000-15,000 per $BTC after. I would not be surprised if we see bitcoin prices rise above these levels so that miners remain profitable. https://t.co/BomDfD7j54
— John Todaro (@JohnTodaro1) February 10, 2020
Twitter analyst ‘PlanB,‘ who introduced the stock-to-flow model for predicting the Bitcoin price, says Bitcoin needs a monthly capital inflow of at least $400 million per month to achieve a rising price in the long term:
To maintain $7000 since Oct 2017, #bitcoin must have had about $400M new cash inflow every month last 2.5 years! (30d x 24h x 6blocks x 12.5btc x $7k assuming all trading is zero sum game)
After the halving, we only need $200M per month to keep $7k level. If $400M stays, then
— PlanB (@100trillionUSD) April 6, 2020