After Paul Tudor Jones, Chamath Palihapitya, another Billionaire VC investor came out on CNBC yesterday, expressing his fondness for Bitcoin and its’ non-correlational with the stock markets.
Nevertheless, their bet is actually based on opposing views for the economy. While PTJ is banking on BTC as an inflationary hedge, Chamath is suggesting a deflationary spiral. Moreover, in case of the latter scenario, we could witness another drop in the price of assets, including Bitcoin and gold.
Inflation or a Deflationary Spiral Downwards?
The COVID-19 ridden economy has been torn between the two with an inevitable global slowdown. The Government have continually printed heaps of cash to maintain liquidity in the markets. The increase in supply of US Dollar suggests the onset of high inflation. However, credit defaults, employment and decreased GDP could have investors flocking to cash. Hence, as the demand for cash increases and spending decreases the price of goods and services are likely to fall.
Chamath has been a long standing advocate of Bitcoin. In fact, his VC fund growth in the last couple of years has been attributed to Bitcoin’s growth. He points out at one of the greatest markers of a deflationary spiral in the current economy.
“The best technology companies in the world have literally been training billions of consumers to not really spend money,” he said. “The whole idea is if you wait tomorrow, you will get more for less.”
Nevertheless, make no mistake, in either case a crisis seems unavoidable. Chamath points out in a tweet,
I say deflation and buy. he says inflation and buy. other people just say buy. we can disagree about the forcing function, but we all agree on the outcome…
Everything is Relative
Furthermore, along with Bitcoin, the stock market has been trading higher as well. This comes as a surprise to many, nonetheless, the monetary injection by the Feds continue to inflate asset prices. However, as the spending is set to decrease, a deflationary spiral could drive down asset prices to new lows. Moreover, with the a positive correlation with the stock market in recent times, Bitcoin could undergo a deeper correction as well.
However, as gains and losses are relative in the economy. The limited supply and correlational of Bitcoin and Gold would favor its’ growth in a crisis ridden environment. Tone Vays, leading derivatives trader and analyst notes,
Ironically, the reason Paul Tudor Jones is recommending #Bitcoin is to hedge “inflation” not “deflation”. But hey whatever gets these guys to recognize $BTC‘s value is a good thing.
How do you see the economy and asset prices play-out in this economy? Please share your views with us.
