Disclaimer: Opinions expressed in this article do not constitute investment advice from Bitcoin Reserve.
First, are we in a crisis? The markets sure tend to think so. Yet the markets are just one piece of this puzzle. To understand exactly what is going on with the current viral pandemic, I suggest watching this interview in your spare time:
There is a lot there to process here, so let me just summarize the reality of the situation and our current global response with a quote from Osterholm, an American public-health scientist and a biosecurity and infectious-disease expert, who appeared in the link above:
"Halting [the pandemic] is like trying to stop, the wind. With influenza transmission, you never hear people saying in a bad seasonal flu year, we are going to stop this one… we are handling this like this is a corona blizzard, you know, two or three days and back to normal. This is a corona virus winter, and we are going to have this last for 3 months or more."—Michael Osterholm
I would say this outbreak warrants definite concern, and we are witnessing the beginnings of a series of events that will change the outlook of the modern global economic landscape and society at large. So the question becomes, how is bitcoin going to be affected, and what role does it play?
Bitcoin is widely considered to be THE long-term hedge against poor economic policy on behalf of countries and central banks alike who believe printing money solves systemic issues. In fact, some even may argue that bitcoin would not even have had much utility if it was not for the mismanagement of our fiscal policies by our governments. With that said, bitcoin is not, and I repeat, NOT a hedge in times of market disorder and crisis because it is still a risk-on asset for most of the world.
In general, time has proven that when the markets HINT at hard times, or there is a stench of weakness or fear -and risk appetite is low - people start to move out of stocks and into more secure things like gold (as a hedge) and treasury bills (as a proxy for cash). However, when those fears become a living reality, and the market starts to actually price that in, what occurs? Well, in 2008, during the housing market implosion, gold too was down 30%. That does not sound like much of a hedge, it sounds more like a speculative asset with a bit of a twist.
Digging deeper, one can begin to understand why this is the case. In short, in 2008, when the whole global economic system of credit and repo lending was grinding to a halt, and the economy was in real trouble, a shiny piece of metal did not provide much in the way of actual utility. And without real utility, price discovery is a slave to market forces. This time around, it is no different, proving again that gold is not a hedge to economic calamities. As of the date of writing, gold has dropped nearly 15% from its highs, while simultaneously, the markets have dropped over 30%.
Speaking of current events, during this crash, not even treasury bills are being spared, and lending facilities are being propped up yet again to prevent a credit freeze of 2008 proportions.
The current economic conditions are concerning at best, frightening at worst. But, let's consider the question of whether or not the novel Coronavirus is the culprit behind what sent bitcoin and traditional markets plummeting. I would argue no. Although very serious, the Coronavirus was but a catalyst that started a domino effect in the REAL economy, which was already so very fragile due to its dependency on "Just in Time" inventory management methodologies and its reliance on the false stability brought upon by stimulus support in the form of QE.
The novel Coronavirus (or COVID 19 as it is now called) has caused a reduction in China's production (on which many companies and countries depend on); led to a drastic decrease in global tourism; and has had other knock-on effects that are putting a real brake on the global economy. Usually, these events alone would not be catastrophic. But because of the aforementioned fragility, the real economy can't handle a global slowdown for too long - even with government intervention - and the results of the individual shocks are amplified significantly. So really, it is our sickly economic system, that (like it or not) bitcoin is still reliant upon, which took bitcoin for a violent ride down to the basement following the initial Corona disruption. Right now, we are officially hitting numbers that indicate a global recession, and the situation is speculated only to get worse. So we might be seeing the first stages of a real economic meltdown and a change in command in the power structures behind the global economy (more on this in future articles).
With regards to what to do (and this is not financial advice), I would personally suggest for anyone living in North America to stock up on non-perishable foods, water, and gasoline as a precautionary measure should more local supply chains start to feel the shock in the coming months. On the investment front, bitcoin should be treated like gold - not gold stocks or ETFs - I mean physical gold. In an ideal situation, one would have 1-2 years of their living expenses stored in physical gold before a crisis hits, and this gold is not intended ever to be sold but is meant to be there as a lifetime savings account (a store of value). Historically, gold has stood the test of time for humanity for some strange reason. An ounce of gold could buy a person pretty much the same basket of goods in 2008, as it bought them on black Friday in the 1920's, and the same basket of goods in Egypt during the reign of the Pharaohs. Now, in the internet age, the same logic applies to BTC. It is sound money that is fungible, infinitely divisible, and enables borderless transacting without the problem of physical transportation that will be around so long as the internet remains operational.
Closing off, when the crisis hits, it is already too late to worry about what bitcoin is or will do and what one should do about it. Instead, it is the time to focus one's energy on creating opportunity from disaster. How? By investigating what it is that fundamentally makes our economies and our orange internet coins so valuable to us, and begin building a strategy for the future while sustaining ourselves today.
Over and out.