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Moment of life or death for Bitcoin

April 30, 2020

In 2007, Nassim Nicholas Taleb, a former Wall Street trader who became a professor, described the idea of ​​a Black Swan event. Black swans are defined as rare, of great importance, and impossible to predict, although he has weakened their predictability by realizing that they can be explained in retrospect.

A confluence of events has formed in 2020 to create an event with black swans that has not been seen in the world since the Great Depression. This even eclipses the 2008 financial crisis.

After the global financial crisis of 2008, Taleb spoke of the importance of considering the possibility of black swan events, and argued The effects are more catastrophic if systems are artificially supported. Taleb believed in creative destruction that made black swans less strong when they appeared.

Moment of life or death for BitcoinMoment of life or death for Bitcoin

Isolated from crises for 12 years, lThe global economy has proven unable to cope with the attack these unprecedented times have launched on it. The scale of the effects of “COVID Winter” has shown that Taleb is right.

The seismic health emergency has triggered a series of interrelated shocks and has coincided with other phenomena that have caused the global financial system to fluctuate as a result.

These are the same conditions for which Bitcoin (BTC) was developed.

The seismic event: a 100-year pandemic

The corona virus spread to all parts of the country during the New Year celebrations from Wuhan, China, and would soon spread worldwide. The United States, the United Kingdom, Italy, Iran and Spain would be most affected after originally spreading to China, South Korea and Japan.

It has done immense damage. At the end of April, more than 25 million Americans were unemployed and closures were made in most parts of the country. The country’s financial capital became the new epicenter after Wuhan and northern Italy. The virus overwhelmed the Spanish healthcare system. More than 200,000 people worldwide were killed in five months.

First answer: stimulus packages

With the submission of unemployment claims and the unprecedented closure of jobs, Governments have launched stimulus packages to help their citizens during the quarantine period. According to the United States Congressional Budget Office, the fourth Congress bill of $ 500 billion has increased the total amount of aid packages in the country $ 2.4 trillionincluding spending packages and tax cuts.

Worldwide, Governments have pledged more than $ 8 trillion in cash injections and relief for small businesses and households. Germany and Italy have committed themselves more than 30% of their respective internal gross products help against the corona virus.

With the tourism and retail sectors plagued by the cessation of almost all commercial activities, The economic impact of the pandemic is likely to take years, if not decades. No stimulus can support the economy throughout the scope and duration of the continuation.

Second answer: Central banks are rushing to printers

The U.S. Federal Reserve Interest rates were reduced to zero in mid-March when it became clear that the virus had made significant progress in American life and markets. They launched a $ 750 billion quantitative easing program to support the financial system.

Japan renewed its commitment to quantitative easingthat the Bank of Japan has been tracking for over a decade. The Bank of England, the European Central Bank and the People’s Bank of China followed suit. With hardly any decline in currency weakness in major global economies that has followed the global financial crisis, The quantitative expansion has started to resemble the new normal.

Taleb recommended that weak systems fail so that economies have the arsenal at risk of potentially catastrophic impact. After the collapse of Lehman Brothers, nobody seems to have followed his advice. There are very few levers left that need to be separated from printing money to buy assets.

The stock markets are not bought. Even though they have recovered a little, On March 23, the SP 500 fell 34% from its February high.

Oil futures fell into negative territory Excess oil made storage more expensive. The collapse of talks between Saudi Arabia and Russia led to an increase in world production, just like COVID-19 caused governments to shut down their economies and use far less energy than usual.

The simultaneous crypto event: the upcoming decline in Bitcoin supply

middle of May Bitcoin block rewards drop from 12.5 to 6.25 BTC. The third halving leads to the annual issue of Bitcoin fall at a rate that puts your stock flow ratio around that of gold. And smart money wants to go in. The cryptocurrency fund manager, Grayscale recorded the largest entries in the first quarter of 2020.

Bitcoin-related conversations on Twitter were dominated by the corona virus in February, gold in March, and there has been a recent increase in topics related to halving that is approaching the event. Bitcoin is the only asset that fully recovered from its coronavirus crash in mid-March.

Life or death for Bitcoin

The debate over the most promising use case of Bitcoin has been going on since its invention. For some, is a hedge against inflation. For others, an escape from the corrupt and inefficient banking and financial infrastructure. Some like to spend it. Others like to invest in them. Others prefer to speculate with it.

Actually Bitcoin can be one of those things for different people. Regardless of what Bitcoin does best, It is fairly clear that the current circumstances in which we find ourselves are an approximation of many of the risks that Bitcoin is ideal for taking refuge in.

The world is facing an excess of fiat money and oil. Bitcoin’s offer goes in the opposite direction. Bitcoin was inspired by a financial crisis and distrust of centrally managed money.

It’s time for Bitcoin to shine. And whether this is the case or not, will decide whether it will become the central focus of the future of finance or little more than a short-lived historical novelty.

The views, thoughts and opinions expressed here are only those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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