In brief

  • Michael Novogratz says that massive quantitative easing, combined with Bitcoin's imminent halving present an opportunity for it to shine.
  • He offers anecdotal evidence that people are increasingly looking for scarcity.
  • Other analysts warn that the combined effects may take a while to filter down.

The prospect of money “growing on trees,” due to massive fiscal stimulus efforts, combined with an imminent halving presents a compelling case for Bitcoin (BTC) and one that its advocates are becoming increasingly excited by.

One of them is Michael Novogratz, a former hedge-fund manager and founder of crypto-focused merchant bank Galaxy Digital. During a CNBC interview on Tuesday, when yet more stimulus measures were announced, he doubled down on the case for Bitcoin:

 “Bitcoin has this moment right now,” he said. “Just today we had another trillion dollar stimulus—money growing on trees, and my mother taught me when I was younger, ‘money doesn’t grow on trees’.” 

Novogratz, a Wall Street legend, said that as fiscal stimulus continues, he’s seeing more and more people getting interested in cryptocurrencies, “to find something with scarcity.” 

Moves by policy makers, in combination with reduced rewards for miners—a consequence of the halving—are likely to enhance Bitcoin’s appeal, he said: 

“My sense is you’re going to have the macro tailwind, plus the adoption tailwind happening in Bitcoin. Gold already has its story, it’s going to put new highs in this year, and so I think that’s a really powerful story that policy makers are going to continue to play into.”

If not now for Bitcoin, then when? 

Novogratz isn’t the only investor who thinks the economic fallout from the coronavirus crisis could give the world’s most volatile currency the upper hand. Some, like former Facebook executive and billionaire investor Chamath Palihapitiya, believe that how governments react to COVID-19 could have a greater impact on Bitcoin than the virus itself. 

According to Palihapitiya, the current economic crisis has increased Bitcoin’s chances of having a valuable economic role from one percent to five or ten percent. In such a scenario, Palihapitiya sees a single bitcoin being worth millions of dollars.

To date, in the aftermath of the World Health Organisation’s decision to officially declare a COVID-19 pandemic last month, Bitcoin has failed to shine. It’s still down more than 30% from the year-to-date highs seen back in February.

Messari co-founder Dan McArdle thinks this is down to a misunderstanding about the cryptocurrency’s key value proposition. He believes that Bitcoin is more a hedge against inflation and loss of confidence in fiat currencies, than a hedge against a typical recession.

“This is looking to be especially important over the next few years as central banks globally add many trillions to their balance sheets,” he told Wired UK. “If they're successful in preventing further asset price declines, the new liquidity may very well seek out scarce assets such as Bitcoin.” 

McArdle also considers that the potential for future stimulus activities is likely to make people look more deeply at the concept of money. “In an environment where people begin to question the monetary system, alternatives such as Bitcoin can draw a lot of attention,” he said.

Countering this view is the dominant role of the US dollar in the global economy. “This is the best explanation for how the Fed can print unprecedented amounts yet the dollar still strengthens in the near-term,” he said.

What effect will the Bitcoin halving have?

The dollar’s dominance could itself be mitigated by the Bitcoin halving, according to Simon Peters, an analyst at multi-asset investment firm eToro. 

“With the Bitcoin halving fast approaching, where miners will see the amount of Bitcoin mined from each node reduced by 50%, it could be that investors are choosing not to sell their holdings as we might expect, and instead are staying in Bitcoin so as not to miss out on the anticipated gains in the months following the halving,” said Peters.

However, Jason Deane, an analyst at Quantum Economics, told Decrypt that we shouldn’t expect action to happen too soon. 

“It will take time for [the] effects of both QE [quantitative easing] and the reduced supply of Bitcoin to filter through,” he said.

Perhaps, then, Bitcoin’s “moment” isn’t “right now.” But it could be soon.