Bitcoin exploded onto the global stage in 2017 with a massive rally that made many early adopters overnight millionaires.
The bitcoin price, which is up around 5% so far in 2020 after a rocky few weeks following the coronavirus crash, has swung wildly over the last year—down around 50% from its 2019 high.
Now, as traders eye the biggest quantitative easing program ever undertaken, bitcoin could outperform the wider market in 2020 with investors scrambling to keep up with a rapidly evolving and uncertain situation.
“Economists are dealing with three levels of uncertainty,” UBS chief economist Paul Donovan wrote in his daily update.
“Uncertainty about the virus. Uncertainty about the policy response. Uncertainty about the economic response to the virus and to policy. Changes in any one of those change economic outcomes.”
Donovan added the latest consumer sentiment surveys should be “thrown away unread.”
Amid all this uncertainty, bitcoin’s roadmap remains unchanged with the highly-anticipated halving event looming.
Next month, the number of bitcoin rewarded to those that maintain the bitcoin network, known as miners, will be halved for the third time, dropping from 12.5 bitcoin per block to 6.25.
Bitcoin halvings are scheduled to continue roughly once every four years until the maximum supply of 21 million bitcoins has been generated by the network—something that isn’t expected to happen until well into the next century.
“Bitcoin has been the best performing asset by far over the last year and over the last decade. With all the money being injected into the system at this time and the upcoming halving, I don’t see any reason it wouldn’t continue to outperform,” said Mati Greenspan, the founder of financial advisory outfit Quantum Economics.
A survey of major bitcoin investors showed most were upbeat at the beginning of the year, with the bitcoin price expected to soar to over $20,000 per bitcoin in 2020.
“The current unexpected global crisis and a number of notable events in bitcoin’s pipeline over the next nine months is causing speculation throughout the industry that another bull run is on the horizon and I believe that we can only expect the price of bitcoin to continue in the direction that everything is currently pointing potentially towards that $20,000 figure and beyond,” said Danny Scott, the chief executive of Isle of Man-based bitcoin and crypto exchange CoinCorner.
As the bitcoin sector braces for a supply shock, central banks and governments are revving up money printers.
“A lot of people are convinced all the Fed’s money creation will create dollar inflation and so cause people to flee to [that currency] and gold,” said financial author and trading veteran Glen Goodman, who made a name for himself by successfully navigating stock markets during the 2008 global financial crisis.
“That may well turn out to be the case, but don’t forget that after the 2008 financial crash, a huge amount of dollars were created, yet we never saw serious consumer price inflation as a result. It is not a given this time either.”
U.S. president Donald Trump has signed into law the fourth coronavirus relief package that will provide aid to small businesses and the healthcare system to the tune of $484 billion.
Stocks on Wall Street climbed after Trump signed the latest stimulus package into law, shaving their losses for the week.
“Equities have come to the end of a ten year bull run, fixed income is under pressure and we have seen the collapse in the price of a number of key commodities, so with the levels of quantitative easing coming into the markets we would hope to see a steady build in the price of bitcoin to the end of the year,” said Marcus Swanepoel, chief executive of London-based bitcoin and cryptocurrency exchange Luno.
“Over the last five years bitcoin has consistently outperformed most other major asset classes so it is highly likely this trend will continue, especially with the increased fragility of the existing financial system we’ve seen over the past few months.”
Lawmakers are meanwhile expected to put together a larger package to follow this months CARES Act, which saw millions of Americans receive checks for around $1,200—some of which has ended up in bitcoin, according to the chief executive of one of the largest U.S. bitcoin exchanges, Coinbase.
BinanceUS, part of the world’s biggest bitcoin and cryptocurrency exchange, has reported a 82% rise in daily users over the last month.
“A new influx of users could mean [Americans] are looking for more cost-efficient ways to get into bitcoin or out of crypto,” said BinanceUS chief executive Catherine Coley, adding that demand for bitcoin could be outpaced by supply.
Over the last 12 months, the bitcoin price has climbed from $5,500 per bitcoin to $8,500—up almost 40% as tech company plans for crypto and digital finance services push central banks toward digital currencies.
Some think bitcoin could cement its status as a so-called safe-haven asset as a result of the coronavirus pandemic, with investors buying bitcoin in times of uncertainty alongside gold.
“If quantitative easing causes an uptick in inflation, we could see bitcoin being increasingly used as a hedge against global instability, which will have a significant positive impact on its performance,” said Gavin Smith, chief executive of Panxora Group, a consortium of cryptocurrency companies that includes a hedge fund and a cryptocurrency exchange.
“However, it is far from being a magic money tree—we certainly aren’t free of price swings and volatility, so while there will likely be an uphill trend in price, investors should still proceed with caution.”