The printing of trillions of dollars would be one of the drivers of inflation.
As a safe haven asset, bitcoin shows some advantages over gold.
Tyler and Cameron Winklevoss, well-known entrepreneurs in the cryptocurrency market, believe that the economic crisis in the United States could push the price of bitcoin to $ 500,000 in the next decade.
In an article Posted last Thursday on the Winklevoss Capital blog, entrepreneurs say that while gold, the dollar and oil have been strong historically, they are currently in “fundamental problems.” The central argument of his article is that bitcoin is the only long-term protection against inflation.
In times of economic expansion, the authors note, when it is prudent to combine a savings policy with moderate public spending and tightly controlled money emissions, the US government pursued the opposite policies.
Based on data from the National Office for Economic Research, the publication highlights that the recession at the end of 2007 ended in July 2009 and that, since then, the Treasury has executed budgets with deficits, which doubled the debt to USD 22 trillion at the beginning of this year.
Now, with the crisis triggered by Covid-19, and according to the projections of the Congressional Budget Office, the United States will have a deficit of USD 3.7 trillion in 2020 and USD 2.1 trillion in 2021, which will take debt to a grand total of $ 29 trillion by September 2021.
Tyler y Cameron Winklevoss.
The growth of the money supply in circulation can be seen in the following graph, expressed in billions of dollars. As can be seen, 2020 started at around USD 16 trillion and by August 3 it had exceeded USD 18 trillion, representing a 12% increase.
The document highlights that when the balance sheet of the federal reserve is examined, it is found that this year USD 344,000 million in securities associated with mortgage debt were added along with USD 820,000 million of long-term securities.
Of the USD 3 trillion increase, USD 1.1 trillion was printed. To put this in perspective, the Fed printed in the past six months two-thirds of what it did in the past 11 years.
Tyler y Cameron Winklevoss.
The graph above shows a sharp rise in 2008 in the 2008 Fed balance sheet, although it is substantially lower in magnitude than the one that occurred in 2020.
From 2009 to 2019, the relationship between debt and gross territorial product (GDP) grew from 83% to 106%, product of the crisis caused by Covid-19, says the document. “This ratio will reach 135% in September this year, and it will have grown this year more than it did in the last decade.”
Difficulties with gold and oil
Monetary and fiscal policies not only weaken the dollar, also oil and gold present difficulties, according to the document. In the case of oil, supply far exceeds demand, while the decline in consumption in the world, due to the crisis generated by Covid-19, recently created “a shock in demand.” This caused the prices of oil futures contracts to fall. to negative values, last April.
Furthermore, as the recent crisis demonstrated, oil storage is “inelastic,” say the authors. One factor contributing to the recent price slump was the inability to store more oil as storage space had maxed out, due to lower consumption.
Regarding gold, a safe haven asset par excellence, the document puts forward a hypothesis that could threaten the scarcity of gold. It is, although it seems like a science fiction topic, the possibility of starting with asteroid mining initiatives.
Although gold remains rare or “precious” on planet Earth, the same cannot be said for our galaxy. Scientists believe that asteroids contain a plethora of metals, including gold, and have compiled a database of 600,000 asteroids and their respective compositions.
Tyler y Cameron Winklevoss.
There are objective conditions to think about a medium-term development of mining in space, argue the Winklevoss, for all the advances that are already in development, and the trips proposed by Elon Musk. They also mention NASA’s plans to explore the Psyche satellite in 2022, as well as the legislation already in force that grants space mining companies ownership of the materials obtained.
Another important point regarding gold is the difficulty of transporting it, especially in the conditions imposed by the pandemic.
The advantages of bitcoin
“Bitcoin is not just a rare commodity, it is the only well-known in the universe that has a deterministic and fixed supply,” says the article. This means that bitcoin is not subject to “demand shocks” as has happened with oil or can happen with gold. While bitcoin exhibits other important advantages such as ease of portability and robust security, “it is better as gold than gold,” the document notes.
In a detailed comparison between gold and bitcoin, portability, divisibility of storage media and scarcity are highlighted in the document, among other. Bitcoin is divisible to a hundred millionth, while the lowest expression of commercial gold is a troy ounce.
The bitcoin safeguard is for software, by storing private keys in a wallet, while gold requires expensive safes not very easy to transport.
Since its introduction, bitcoin has moved rapidly into the realms of gold, the authors say, and predict that if its trajectory continues as it has now, a bullish scenario reflects that bitcoin is undervalued by a factor of 45say the Winklevoss brothers.
With this estimate, the price of bitcoin stands at roughly half a million dollars. Citing MicroStrategy’s recent investment, of $ 250 million in bitcoin as a treasury reserve, the authors suggest that if 10% of the $ 11.7 trillion in fiat currency that central banks hold in reserves were replaced by bitcoin, the main cryptocurrency would be priced close to at $ 600,000.