Bitcoin, the coronavirus and the financial crisis
These are strange times. The world is turned upside down due to the corona virus and almost all financial Tumbler have collapsed, including the bitcoin market. To stimulate the economy, central banks worldwide announced drastic emergency measures, including interest rate cuts, a reduction in banks' reserve requirement and new rounds of quantitative easing. Is a financial crisis on the way and what does Bitcoin have to do with it?
It will not have escaped anyone that the world is seriously disrupted because of the corona virus. The virus is also prevalent in the Netherlands and makes victims. The loss of life is terrible, the socially disruptive consequences are serious and the effect on the economy is dramatic. The latter already had major problems, but now seems to succumb under pressure from the corona virus.
Virtually all financial Tumbler have been hit hard in recent days. Stock Tumbler fell almost universally; the biggest drop since 'black monday' in 1987. The end does not seem in sight yet. The other Tumbler were also hit hard. The price of a bitcoin fell by more than half in a short time.
Globally, governments and central banks announced sweeping emergency measures to prevent a further collapse and revive the economic engine. The FED, the American central bank, therefore announced last week that it was pumping no less than $ 1500 billion into the economy. New measures were announced on Sunday. As an extra emergency measure, quantitative easing (in English: Quantative Easing - QE) will be restarted. It is a complicated-sounding and controversial measure that, in short, boils down to creating new money to inject money into the economy through the banking system. The European central bank (ECB) has also been working on QE for some time and announced last week that it would make even more billions available. UPDATE: On Wednesday evening, the ECB announced that it would make another € 750 billion available.
There is even more cause for concern. The interest has also been reduced, in some cases to 0%. Borrowing money costs money - but not anymore. Perhaps most worrying is the reduction in the required reserves that US banks are required to hold. Banks lend the money they hold several times, but are usually required to keep a certain percentage in reserve. That percentage has now been reduced to 0% in the US, which means that there seems to be no longer any limit on the amount of new money that banks can create through loans. Money thus seems not only free, but also available in unlimited amounts.
They are drastic emergency measures, but also dangerous. After all, dollars and euros have no intrinsic value and the exchange rate is determined by supply and demand through market forces. When the money supply increases, the market supply increases, and that in principle has an effect on the price. If this is done in a controlled manner, it shows that there is a relatively low rate of inflation, but in some countries things go wrong and hyperinflation arises. The money will then rapidly become worth less, making everything more expensive, with disastrous consequences for society, the economy and the population. Now that the global economy is turning and limitless money creation seems to be becoming a reality in the West too, the question arises: is this the financial crisis for which Bitcoin was created?
The Times 03 / Jan / 2009 Chancellor on green or second bailout for banks. " This message placed the mysterious Bitcoin creator Satoshi Nakamoto 11 years ago in the very first block of the Bitcoin blockchain. It refers to a newspaper article on the front page of The Times of January 3, 2009 about a second round of money creation to save the failing banks during the credit crisis.
Bitcoin & the financial crisis
Bitcoin does not come out of nowhere. It's not just fake money for internet nerds and speculators. There have been serious concerns for much longer about the sustainability of the financial system, unbridled money creation and its negative effects on ordinary citizens. Satoshi Nakamoto was probably referring to the now legendary newspaper article in The Times for that reason, and for good reason he wrote when he first introduced Bitcoin to the world:
- The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible. " -Satoshi Nakamoto, P2P foundation
An alternative based on scarcity
Bitcoin stems from the previous financial crisis. Bitcoin is therefore not intended to get rich quickly, but it is actually mainly an alternative financial system that people can use to protect themselves. In addition, it also has all kinds of advantages and technological innovations that are also very exciting and interesting. But, it is mainly a Plan B; an alternative economy where inflation is strictly regulated and cannot get out of hand, but mathematically determined in the code and secured locally so that you can rely on it. Even during a crisis it is not possible to create extra bitcoins.
Unlike with regular money, Bitcoin does not have a central bank or other central party that can devalue the currency with money creation (whether or not by necessity). There will never be more than 21 million bitcoins. Because Bitcoin is decentralized, nobody can do anything about it; the whole design is designed to resist that. And that, according to many Bitcoiners, makes bitcoins better to store and maintain wealth (store of value) than the inflationary euros or dollars. Digital gold for the 21st century For a similar reason, some people also invest in gold, because you cannot easily make it anymore: it is scarce. As a result, gold retains relatively good value even in times of economic need. However, gold is also subject to inflation: in case of price rises you can simply dig deeper, or maybe even extract huge lumps of gold from space. Today it is also less suitable as a means of payment. In our digital society, try ordering something from a webshop with a physical lump of gold. That is why Bitcoin is also called the new gold. Not because it has anything to do with gold rush or price increases, but because it has the same economic properties that make gold interesting: an independent and decentralized economy based on real scarcity. And because in times of a financial crisis it may be a possible safe haven asset, just like gold. Only digitally and with all kinds of new technological possibilities, but without the physical inconveniences and limitations that gold faces: digital gold for the 21st century.
In fact, Bitcoin is an opportunity for something new. A dream of a new kind of financial system in which, unlike in the old one, the citizen is the owner and has control over the money. An alternative economy that may not solve all problems related to wealth distribution, but in any case is not subject to a downward spiral of loss of value. Something that is emerging, not fading. Not an inflationary system with built-in incentives to consume endlessly, leading to mass consumption and (environmentally unfriendly) overproduction of cheap goods, but a system that stimulates to save, to be future-oriented and to use resources sustainably. Not a system in which you depend on banking monopolies that determine whether or not you can become a customer, but the freedom to trade with each other simply peer-to-peer and without the intervention of third parties. With bitcoin you do not need a bank, but you are your own bank. And also a system that does not need to create unnecessary bubbles in the housing or stock Tumbler, because in the bitcoin economy you do not have to flee inflation, but you can simply store wealth as money bitcoin. Money that simply has the functions that money should have. A healthy and reliable economic basis; robust, independent, predictable. Financial independence and inclusivity
It is also an economy that is fairer and more financially inclusive; it creates financial sovereignty for everyone. It is an economy that has no borders or nationalities or even identities. An economy in which the more than 2 billion poorest people in the world, who are now excluded from the digital economy because they cannot open a bank account, can participate on an equal footing with everyone else. Where a poor woodcarver from Africa does not have to wait for that one tourist to walk past his rug with merchandise to earn something, but the entire digital world is at his feet via a cheap smartphone. And where a Venezuelan entrepreneur can continue to do business, regardless of how the local economy is doing and regardless of what kind of mess the Venezuelan government makes of it. But also an economy for you and me, normal Dutch people, because you may also be a bit concerned about the state of our economy and see the usefulness of an independent currency; for yourself and also for society.
That's why Bitcoin is important and that's why many Bitcoiners are so fascinated with Bitcoin. And also why there are so many 'HODLers'. Not because you can get rich with Bitcoin - although that often plays a role in the initial interest - but also mainly because it is an answer to the problems that our current economy and society are facing and a means to combat them. to protect. Why Bitcoin? And because the world is ready for a better, healthier and more inclusive system. Because that is what Bitcoin is really about and why Bitcoin is not only a technological revolution, but can also be an economic and social one. The price, many Bitcoiners sometimes say, is actually the least interesting thing about Bitcoin.
People who understand Bitcoin in this way often don't buy bitcoins to make money from it. The sometimes fierce price fluctuations often no longer matter to them. That's why you sometimes see Bitcoiners smile so calmly when the price has dropped by half again. They have experienced it before and see the potential of Bitcoin to change the world, know what it really is about and their motivation stems in part from an idealism: the dream of a fair and better economy, but above all of a better world. For everyone individually and therefore for society as a whole. Because maybe Plan ฿ is not only an alternative, but maybe in some aspects it is also eater. Perhaps that is why more and more people are becoming interested in the idea of financial freedom and decide to be part of the bitcoin economy. For the dream and the 'maybe', but also 'just in case'. You never know; after all, these are strange times.