Bitcoin soared to $60 000 this weekend, a record high. This was due to a growing corporate interest in the new asset class and the anticipation of massive monetary stimulus from the US. The US President Joe Biden’s administration announced a $1.9 trillion stimulus package (with a “t”) last week. This package will provide unemployment benefits of $300 per week through September and $1 400 in stimulus cheques to those earning below certain thresholds. This is on top of the $900 billion stimulus package that was agreed to December last year and provided $300-per-week benefits for the unemployed.
Stimulus Package
Jon Ovadia (CEO and founder of crypto exchange OVEX) says that the scale of the stimulus package is unprecedented in the US – or indeed, world history. Therefore, there is understandable concern about the impact it will have on the US Dollar going forward. “There are concerns that this will lead to inflation in the months and decades to come. That is why bitcoin is considered a way to protect yourself from this outcome.”
Since the Second World War, the US dollar has lost value at a rate of 3.4% per year due to monetary stimulus. However, inflation has rarely – except in the 1970s- gone above 2% per year. Despite the massive monetary stimulus that has been given in recent years, US inflation is still subdued. This is due to the fact that a lot of this new money remains in US bank balances. It has not reached consumers but has reflected in rising asset prices like stocks and bitcoin.
Monetary Stimulus
Most likely, at least some of the $1400 stimulus checks being received by US citizens will end up in bitcoin or other cryptos. This is partly why bitcoin has been growing steadily. However, there is a risk that this massive stimulus will begin to show up in consumer price.
“There’s a real chance that within the year we’re going to have to deal with the most severe incipient inflation problem we have faced over the past 40 years,” Larry Summers, former US Treasury Secretary, told Bloomberg in February.
The US dollar has declined 3.4% per year over the past 70 years, but the South African rand has fallen by 8% per year since its inception in 1961.
Anti-inflation Options
Ovadia claims that countries with high inflation tend to be big adopters of antiinflation assets such as bitcoin. There will never be 21 million coins in circulation (there are less than 19 million).
Another factor that drove bitcoin’s recent price surge was the shift of large amounts of their treasury cash by companies like Square, MicroStrategy and Stone Ridge into bitcoin.
Many other companies have joined the ranks of Tesla after it announced earlier this year that they had purchased $1.5 Billion worth of bitcoin. Software firm Meitu announced earlier this month that it had purchased $22million in Ether and $19.9million in bitcoin. Meitu board followed through on a decision by Meitu to invest up to 100 million in crypto assets.
Market Capital
Bitcoin’s market capital has now crossed the $1 trillion mark to $1.14 Trillion, which puts it within striking distance of Alphabet’s $1.38 Trillion market cap.Ovadia says that “the market still has plenty of room to run” with the latest bitcoin price rise.
He adds that we are now very close to R1 million bitcoin in rand terms. This is something many people believed impossible just a few decades ago.”This shows that bitcoin is gaining trust as an asset class, and some very smart people at top corporate levels see the benefits of holding at least some [their] reserves in the new asset class.”
OVEX OTC Desk
Purchase bitcoin via the OVEX OTC Desk. OVEX is the most trusted company in SA for crypto arbitrage. However, a greater part of its business is its Over The Counter’ (OTC) desk. This offers institutions and high-net worth individuals a private and secure channel for trading or arbitraging cryptos.
The problem with large quantities of crypto purchased through most exchanges is that there is not enough liquidity to settle the trade in one transaction. This can lead to trades taking hours, or even days to complete at different prices. OVEX has a unique technology solution that solves this problem as well as deep liquidity pools via international partnerships and investments.