In brief

  • Governments worldwide have already spent over $8 trillion to help economies cope with the coronavirus pandemic.
  • Experts believe that such massive cash injections could have negative long-term consequences.
  • Combined with the upcoming halving, this creates advantageous conditions for Bitcoin.

Countries around the world are massively expanding their debts to fight the coronavirus, with worldwide fiscal relief measures already amounting to over $8 trillion, according to Bloomberg.

The US enacted a $2 trillion stimulus package, promising checks of $1,200 to all US citizens, in March. Japan announced a $1 trillion deal of its own last month and G20 leaders have put forward $5 trillion in stimulus payments.

The US debt alone has exceeded $24 trillion recently as the Federal Reserve is injecting unprecedented amounts of money into the economy, trying to counter the impact of the pandemic.

As Decrypt reported on April 9, Bank of America's analysts predict that the Fed’s actions could cause its balance sheet to reach over $9 trillion by the end of 2020—over 40% of the US gross domestic product (GDP).

At the same time, Krishna Guha, a vice-chairman at Evercore ISI, believes that it could reach as much as $12 trillion by the middle of the year, or 60% of the US GDP.

In their turn, both Germany and Italy have already allocated over 30% of their respective GDPs to efforts such as direct spending, bank guarantees as well as loan and equity injections. These stimuli amounted to $1.84 trillion in aid, according to the International Monetary Fund.

“Governments worldwide are unleashing fiscal support measures, but not all fiscal packages are the same,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research in Singapore, adding that “While ‘fiscal bazookas’ are the norm in the more advanced economies, emerging markets don’t have that kind of ammunition and fiscal space. Their fiscal packages are more water pistols than bazookas.”

How will it affect Bitcoin?

While the extreme rate at which states are printing money to counter the economic impact of the pandemic could be concerning in the long term, some experts believe that government and central bank stimuli are actually “good for Bitcoin,” especially as the next mining reward halving is just around the corner.

“As things stand, we are in line to post a 182% rise for Bitcoin since the lows of December 2018, and the surge we are currently seeing paints a bullish picture for the months following this third halving,” Joshua Mahony, a senior market analyst at UK-based derivatives trading company IG Group, told Decrypt.

He said the huge growth in central bank easing and government debt highlights why many feel the need to store their wealth in alternative assets to avoid the apparent depreciation that could be on the cards. 

“Crucially, this drive higher appears to be feeding into the historical pre-halving trend that could point towards a huge upside over the coming year. [...] The truth on the ground is very different and the desperation to keep markets pushing higher means we are likely to see more and more stimulus come into force. That is good for Bitcoin and other non-fiat assets such as gold,” said Mahony.

Mati Greenspan, the founder of Quantum Economics, came to a similar conclusion, noting that as central banks have recently reaffirmed their commitment to creating even more “free money,” Bitcoin is now the best performing asset this year.

“Just like it's done nearly every year since inception,” he added.

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