In brief

  • The coronavirus pandemic caused one of the biggest stock market crashes ever.
  • The Federal Reserve reacted by cutting interest rates to stimulate the economy.
  • We may be headed for a high inflation economy.

Popular cryptocurrency derivatives trading platform BitMEX has released a new report outlining its views on the current economic situation and measures being used to stimulate the economy.

The new report by BitMEX Research examines the coronavirus pandemic’s effects on the US economy and whether the measures being implemented by central banks and governments are sufficient to alleviate the current crisis.

According to the report, the advent of the coronavirus caused what can now be described as one of the worst stock market crashes in history, akin to the 2008 financial crisis and the dotcom bubble of 2000.

Yesterday (March 17), the volatility index (VIX) for the Chicago Board Options Exchange (CBOE) reached a peak of 84.83—only slightly lower than the peak of 89.53 seen during the 2008 financial crisis. Likewise, the S&P 500 has fallen over 30% in 2020, whereas the Dow Jones saw its highest daily decline since 1987.

How Bitcoin could fare in an era of extreme inflation

In response to the sudden dramatic market shift, the US the Federal Reserve cut interest rates to as low as 0% and announced plans to purchase $500 billion worth of treasuries and $200 billion worth of mortgage-backed securities. However, BitMEX believes that this now leaves the central banks with no wiggle room left, since reducing interest rates below zero would lead the public to hoard physical cash rather than increase their spending to stimulate the economy.

“Governments around the world are set to run large fiscal deficits, no longer just as a consequence of higher spending requirements, but as part of a deliberate strategy to stimulate the economy.”

In the end, this may lead to an era of extreme inflation, which could resemble that seen in the 1970s—a time when inflation reached as high as 15%.

Widely described as a "deflationary" cryptocurrency, BitMEX claims that Bitcoin's biggest test and its biggest opportunity are yet to come. Despite Bitcoin crashing by 53% from peak to trough in 2020, its deflationary nature could see it shine in a time where even government-backed currencies might see substantially more inflation than many cryptocurrencies.