Things are not as grim as they seem, find many hardcore Bitcoiners. Sure, the situation is bad currently, but it's just a period that has its end, at that end await more investors, and the entire situation should be used to buy more , they say.
Good for gold and bitcoin
Anthony Pompliano, co-founder and partner at digital asset management firm Morgan Creek Digital, said in a blog post yesterday that "both gold and bitcoin should do incredibly well during this time period." He encouraged people, saying that - between the Covid-19 outbreak causing major economic difficulties and S&P 500, the Dow Jones Industrial Average, oil, gold, and bitcoin all dropping, it's been a very tough week, but that this too shall pass. As a matter of fact, bitcoin, the hardest money ever, was built for this scenario, and its celebrated features are what will prove themselves "exponentially important" in the next phase of this crisis.
"The structural flaws in various markets are exposed when economies slow down, including too much leverage and lack of liquidity," Pompliano writes, and "we are watching a liquidity crisis play out in real-time," meaning that investors go for the exit at the same time, but they can't see their assets as there aren't enough buyers, so the desperate investors start lowering prices aggressively.
However, if an asset has a liquid market, it will be sold for cash. "Investors are incredibly insensitive to price. They need cash so badly that they will make traditionally irrational decisions in order to optimize for liquidity." And that is why gold dropped during the 2008 global financial crisis - not because it was a bad store of value or was no longer a safe haven, says Pompliano. As a matter of fact, it behaved as both of these things the entire time and the price still went up over the years.
Bitcoin is going through the same thing, he says: having a liquid market, it's being sold for cash now, and most of those who wanted to, "have already sold the asset over the last week, which is why we have seen such a significant drop in bitcoin’s price." And even though the price can still drop briefly:
"The weak hands and/or those seeking liquidity have most likely acted already, so it is unlikely that we will see continued sell-offs that cause massive price decreases from these levels," he wrote when BTC was still around USD 6,000.
Furthermore, bitcoin has "strong hands" - financially educated individuals who "are convinced that bitcoin’s sound money properties are superior to any other form of money," and they're not selling their BTC. They're likely buying it now.
The next phase will see rates continue to fall aggressively in the U.S. with possibly trillions of USD dollars "printed," Pompliano believes, which will further remind people that "the U.S. dollar is not sound money."
Something something magical internet money. https://t.co/RbXyyDe37z
— Antony Lewis (@antony_btc) March 13, 2020
As the government tries to bail out the economy via market manipulation (interest rate cuts and quantitative easing), investors go through the liquidity crisis and then seek sound money and safe havens.