Will the upcoming financial crisis bring Bitcoin back to the spotlight

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The Fed’s Stimulus Plans Put Bitcoin Back in the Spotlight

After the Federal Reserve announced further quantitative easing in attempts to soothe the American economy, Bitcoin enthusiasts may have something to gloat about.

Key Takeaways

  • The Federal Reserve announced it will buy as much government debt as needed to aid the economy.
  • Bitcoin and the Dow Jones surged significantly following the announcement.
  • BTC could advance further as the amount of fiscal and monetary stimulus continue to increase.

The flagship cryptocurrency, as well as the broader stock market, spiked up after the Federal Reserve announced a slew of new stimulus programs to provide relief from the recent downturn .

Bitcoin Surges Amid Financial Stimulus

Bitcoin is on the rise along with the Dow Jones Futures following the Federal Reserve’s commitment to continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

Following the announcement, the flagship cryptocurrency surged nearly 14%, trading at a low of $5,850 to a high of $6,660 within an hour.

From a technical perspective, the sudden $810 upswing comes after a retest of the breakout point of a symmetrical triangle that formed on Bitcoin’s 1-hour chart. Now, the pioneer cryptocurrency could continue to rise and hit a target of $7,600, which is presented by this technical pattern.

This target is determined by measuring the distance between the initial high and low of the symmetrical triangle and adding it to the breakout point.

Meanwhile, Dow Jones Futures also rose pointing to a more than 400-point move higher at the open following the Fed’s announcement.

The continued stimulus comes after the substantial sell-off seen across all the major financial markets worldwide, according to the gatekeeper of the US economy.

“The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” affirmed the Fed in a statement.

While the Fed commits to adopt stimulus programs that provide relief from the recent downturn, Bitcoin appears to be benefiting as well.

Now, it remains to be seen whether the growing amount of incoming fiscal and monetary stimulus allows Bitcoin to definitively decouple from traditional markets and become the digital safe haven that many have talked about.

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Eurozone Financial Crisis to Bring in a Raging Bitcoin Revolution

Europe is witnessing a major slump in its economy owing to the political chaos in Italy, causing investors to run to safety that is forcing borrowing costs to drive up. This, in turn, is leading the investors to shift their priorities to the cryptocurrencies that will lead to their much wider adoption. We might be in a Bitcoin Revolution after all!

Europe’s third-largest economy undergoing political turmoil

Just after three months of elections, the current Italian government is going out of the picture. Moreover, the country is looking forward to holding repeat elections in July.

The political scenario has drawn much heat as the Prime Minister so asked to hold the office loses a secure majority support from the major political parties to form a stop-gap government. This means the country is ending up in an utter state of unrest among the people as well as impacting economies, so related.

The ongoing plunge of Eurozone towards an economic crisis is to a great part in the wake of recent happenings in the Italian economy.

Political chaos in Italy, one of Europe’s biggest economies is expected to have a crushing effect on the economy of Europe as well. The reason behind the same is that the previous government sought to make high returns owing to the high-interest costs. This, in turn, is now forcing investors to be in a state of withdrawal as it continues to decline at an alarming rate.

The current situation makes the Italians being wary of the high borrowing costs that have dawned upon them in wake of the upheaval so witnessed.

On the cusp of the financial crisis

Italian political and economic turmoil has started taking effect as bank shares drop down. These shares have further dragged down Europe’s main share markets. At the close, the UK’s FTSE 100 fell almost 1.3%, while Germany’s Dax was down 1.5% and France’s Cac 1.3% lower.

Giuseppe Sersale, a fund manager at Anthilia Capital Partners said:

“It’s a market that is totally in panic”. He further noted “a total lack of confidence in the outlook for Italian public finances”.

Mohamed El-Erian, the chief economic adviser at Allianz in the US, said: “If the political situation in Italy worsens, the longer-term spillovers would be felt in the US via a stronger dollar and lower European growth.”

Cryptocurrencies are the only way forward

In the light of the political turmoil in Italy, the investors seem to shift their investing patterns. People are increasingly relying on the cryptocurrency market that is in complete isolation with the economic fluctuations and offering a safer option.

It has been seen that economies with financial crisis took cryptocurrencies at a much faster rate. Venezuela, Iran, and Zimbabwe are some of the prime depriving economies that in recent past has eagerly adopted bitcoin among other digital currencies.

With Italy facing serious political and economic issues that are more than likely to affect Europe as well, Bitcoin will only become the go-to option.

What are your views on the financial crisis hovering on Italy’s economy? Do you think this will lead to a Bitcoin revolution? Share your thoughts with us!

Origin of Bitcoin: A brief history from 2008 crisis to present times

Though people might have some idea about Bitcoin, I still frequently notice people asking ‘Why was Bitcoin created?’. Well, to answer this question, I’ll have to give you a brief history about the banking system that existed at the time Bitcoin was created and the problems that surrounded the system.

Now, what do you do when you have money? Obvious answer – you store it or you spend it. You store it in your bank account and then you can spend it on whatever you wish later. But have you ever wondered what banks do with the money you deposit with them? Banks invest our money in various projects and they offer loans to people in need. But what happens when the banks lose the very money people trusted them to keep safe?

The answer lies in five words – “The Financial Crisis of 2008”. At this moment, you might be wondering why it’s necessary to know about the Financial Crisis to know more about the origin of Bitcoin. Simple, the Financial Crisis brought out the inherent shortcomings of banks and other financial institutions. After the Financial Crisis, people started to wish for a new system of money that would not have the shortcomings of regular currencies.

What happened during the financial crisis of 2008?

In early days, people did not earn much. And whatever they earned was stored in their house for safe keeping. When people started earning more money, they needed assurance that their money would be safe, as their homes could be broken into and robbed. Realizing the need for security, people started to turn to various banks to deposit their money. These banks also started attracting customers by offering various plans on their deposits.

Now, I am about to take you back to the financial crisis of 2008. What happened in the USA was that the banks had started to give out risky loans to people to attract new customers and consequently, banks had to face significant defaults on such loans. Due to the inability of the people to pay back the money, many banks collapsed and filed for bankruptcy. Parallel to giving out risky loans, the banks were using the people’s money to invest in various opportunities.

Some of these investments did not pay off and the banks lost all the money that the customers had trusted them to keep safe. Thus, many financial institutions went bankrupt. Noticing the widespread bankruptcy, the American Government tried to save some financial institutions from bankruptcy by bailing them out, so that they might be able to resume regular functions. Now, here’s the fun part – the banks lost the money that the customers deposited with them, leaving the customers no way of recovering back the amount.

Then the money offered by the Government to the banks was also the people’s money, which had been paid in taxes. The actions of the American Government led to customer dissatisfaction across the entire country. Since the global economy is interconnected, the events that took place in the USA also affected the world, bringing the world’s economy to a standstill. The financial crisis also brought out the problems associated with having to store your money with a central authority.

How do the actions of your Government affect your money?

A government of a country spends money for the development of its country. The Government receives money from the various types of taxes the people pay. Now, what happens in most of the cases is that the expenditure of the Government exceeds its income. To deal with it, Governments ask the central bank of that country to print more money. This way, the Government tries to make more money available to the public. Another fact to note is that there is no fixed limit to the amount of money that a Government can print.

But though this pumps more money into the country’s economy, it reduces the value of money that was already in circulation in the country. Let me explain this with the help of an example – Imagine there is Rs. 100 in circulation in the market and you own 1 Rupee. In mathematical terms, you own 1% of the money in the country. If the Government prints more money and now the total amount of money in circulation goes up to Rs. 200, the value of your money would go down to 0.5% of the entire market share. That’s a decrease of 50% in the value of your saved money.

Now, these are just hypothetical terms, but the concept remains the same and the value of our money goes down whenever the Government spends more money than it earns. Because of this, we’re forced to work incessantly all our lives to earn money, so that the decrease in the value of money doesn’t affect us too much.

The core idea behind Bitcoin

After the Financial Crisis, people were demanding a currency that would not be controlled by a central authority. When the people put their trust in a bank, the bank had lost the customers’ money and as a firefighting measure, the Government printed more money, which in turn, reduced the value of money already in circulation in the country. Since there was no maximum limit placed on the amount of money that could be printed by the Government, there was always some unpredictability and uncertainty regarding the decrease in the value of people’s money.

Bitcoin solved this problem by fixing the maximum number of Bitcoins that could ever be in circulation and the rate at which new Bitcoins would be produced. The maximum number and the rate of production cannot go beyond the set limit because of the coding used in its design. Also, to ensure that no more Bitcoins would be produced, this code is made visible to everyone for easy verification.

This way, the value of each Bitcoin was dependent only on the supply and demand in the market and was free from all kinds of Government intervention like when the Government artificially alters the value of a currency for various reasons.

Now, whenever we make a transaction from our stored money, we are dependent on a third-party vendor (i.e. a bank) to verify and validate our transaction. There is no guarantee that the vendor won’t get greedy and make risky investments with our money, like what happened in the Financial Crisis of 2008. Bitcoin has eliminated the need for third party intermediaries by allowing users to directly transact with one another.

To store your Bitcoins, you simply need to create a Bitcoin account (called a Bitcoin Wallet) on your computer or your smartphone. This wallet acts less like a bank and more like your physical wallet. In this case, you are your own banker and the wallet cannot take decisions on its own as our traditional banks do. Although the wallets are maintained by various companies, the coding used in their design is made visible and accessible to anyone who wishes to review it. This assures the customers that their deposits would remain safe.

How to release new Bitcoins and who will receive them?

Since the total number of Bitcoins that could ever be produced was fixed, the next most important question was regarding the rate at which the new Bitcoins were to be released, along with the question of ownership of the newly created Bitcoins.

It was decided that the new Bitcoins would be released at a rate that was constantly decreasing. This means that as the number of Bitcoins in the world increases, the number of newly created Bitcoins would decrease and creation would become rarer.

This was done to provide more incentives to early adopters and people who came to try out Bitcoin first. The initial rate of release was decided to be 50 Bitcoins every 10 minutes. This was decided randomly and it was also decided that this rate would get halved every 4 years (also chosen randomly). When you do the math, it adds up to a total of 21 million Bitcoins that would be in circulation by the year 2140.

Now that the rate of release of Bitcoins was decided, the next question was ‘Who will receive the newly created Bitcoins?’

When you make a transaction with your money that you have stored in a bank account, the bank essentially records the transactions and maintains your balance for future reference. These records act as a proof of transfer in case someone claims otherwise. Bitcoin performs the same function of storing a record of all transactions and account balances on a database. It requires a computer to validate and save these transactions onto the Bitcoin database. Now, unlike banks (where the process of recording transactions is done by a specific authority), in Bitcoin’s case, anyone can offer their computers to record the transactions onto the database.

Bitcoin has made this process extremely simple. All you need to do is run a software provided by the Bitcoin development team and run it. The people who offered their computers for this purpose were called ‘Miners’ and the process of recording transactions was called ‘Mining’. These ‘Miners’ were the ones who were awarded with the newly created Bitcoins. People who offered more computational powers i.e. more powerful computers were awarded with more Bitcoins.

This successfully solved the problem of Bitcoin distribution. Now that the miners started earning lots of Bitcoins, they eventually started to trade with it. Gradually, as Bitcoin gained popularity, it started being accepted by various merchants and transactions in Bitcoin became popular. Since the number of Bitcoins in circulation was growing slower as compared to the people who started using Bitcoin, its price started to increase.

Present scenario

Though Bitcoin started off at 0.0001 USD, the present value is 1248.94 USD (at the time of publishing the article). Bitcoin has a bright future ahead of it as its popularity and acceptance continue to grow. Merchants from various geographies and numerous industries are now starting to settle invoices in Bitcoin. Considering the complications it solved and the advantages it offered, it is also called ‘The next big thing after the Internet.’

Provide your comments below

Sahil Baghla

Sahil Baghla, started his entrepreneurial journey while he was still a student at IIT. Before Darwin Labs, Sahil co-founded two companies – Bluegape and Murmur out of which Bluegape was started as a college dorm room project and both the projects went on to raise multiple rounds of investments from 30+ investors. Sahil’s passion and belief in a decentralized world drive him to solve real world problems using the Blockchain technology.

Need to Know

Shawn Langlois

Critical information for the U.S. trading day

Is the market in for some shocks?

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The Federal Reserve is widely expected to strike a dovish chord when it meets this week, clearing the way for a July rate cut — the first in more than a decade — that almost 40% of economists in a Wall Street Journal poll are expecting.

While a hawkish Fed no longer looms large over this aging bull market, Nouriel Roubini, NYU economics professor and perhaps the media’s favorite permabear, now says the world “has an even bigger problem on its hands.”

In our call of the day, Roubini examines “the growing risk of a 2020 recession” and the specter of crisis in an already fragile global economy.

“ ‘A severe enough shock could usher in a global recession, even if central banks respond rapidly.’ ”

Last year, he warned of 10 potential downside risks that could lead to a global recession next year. A friendlier Fed, he says, removes one of them, but the others are still firmly in play and have emerged as more dangerous than before.

“U.S. equity markets have remained frothy since our initial commentary,” he wrote. “There are added risks associated with the rise of newer forms of debt, including in many emerging markets, where much borrowing is denominated in foreign currencies.”

Among the key risks, tensions between China and the U.S. deserve special attention, Roubini says, particularly if they result in China retaliating by closing its market to U.S.-based multinationals like Apple AAPL, +2.09% .

“Under such a scenario, the shock to markets around the world would be sufficient to bring on a global crisis, regardless of what the major central banks do,” Roubini warned. “And given the scale of private and public debt, another financial crisis would likely follow from that.”

At this point, he says central banks around the world are increasingly constrained, exposing illiquid financial markets to “flash crashes” and other disruptions, such as Trump getting into a “wag the dog” conflict with a country like Iran. “That might bolster his domestic poll numbers,” he said. “But it could also trigger an oil shock.”

Spiking oil prices and trade wars, Roubini points out, are more than just a supply side risk. They also threaten consumption grown — tariffs and higher fuel costs suck up disposable income. As a result, uncertainty builds, companies cut capital spending and investment, and the big unwind begins.

No signs of any shock to start the week.

The markets

The Dow DJIA, +2.58% , S&P SPX, +2.49% and Nasdaq-100 COMP, +2.12% are all on the rise. After a volatile stretch last week, oil US:CLN19 is down, while gold US:GCQ19 is up and the dollar DXY, +0.17% is lower.

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Europe stocks SXXP, +0.01% are mostly mixed, and that was the story for Asian markets ADOW, +0.02% as well.

In cryptocurrencies, the price of bitcoin BTCUSD, +3.12% BTCUSD, +3.12% has crossed the $9,000 threshold for the first time in more than a year.

The chart

Donald Trump warned investors over the weekend that they’d better vote for him, or else. “If anyone but me takes over in 2020 . there will be a Market Crash the likes of which has not been seen before!” he wrote. The assumption being that the rally we’ve seen is solely thanks to his work in the White House.

But the Heisenberg Report blog used this telling chart to show perspective on how, when Trump became president, the stock market was up triple-digits from its 2009 nadir and the unemployment rate was already near historic lows.

The buzz

He didn’t name names but Apple AAPL, +2.09% boss Tim Cook seemed to take aim at the likes of Silicon Valley tech giants Facebook FB, +2.12% , Twitter TWTR, +9.56% and Alphabet’s GOOG, +1.82% YouTube during his speech to Stanford University grads on Sunday. “If you’ve built a chaos factory, you can’t dodge responsibility for the chaos,” he said. “Too many seem to think good intentions excuse away harmful outcomes.”

A huge chunk of South America is in recovery mode after a massive blackout left millions of people without electricity in Argentina, Uruguay and Paraguay on Sunday due to an unexplained failure in the countries’ interconnected power grid.

The economy

Along with the upcoming FOMC meeting starting on Tuesday, data on new homes where constructed was started in May and existing home sales are due later this week. On Monday, we’ll get a look at the New York Fed Empire State manufacturing survey ahead of the open, followed by the June NAHB homebuilder survey. As for the Fed meeting, no policy shift is expected.

The tweet

Here’ comes O.J. Simpson. no, really:

Random reads

Tourists need to get off the beaten path once in awhile.

Starbucks SBUX, +3.98% billionaire Howard Schultz is tapping the brakes on his 2020 White House run, citing back pain.

HBO’s version of Chernobyl only “scratches the surface.”

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

Follow MarketWatch on Twitter, Instagram, Facebook.

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