In times of global financial crises, states often use money printing as a way to try to stabilize the situation. The problem, however, is that such a solution directly pushes inflation to higher levels, which devalues investors' assets. They, therefore, resist the purchase of safe and stable assets, such as precious metals, with gold being the most commonly used. We saw such reactions from investors in the 1970s or during the financial crisis of 2008-2009.
However, we can still see a massive investment in gold now. A few weeks ago, it not only overcame its ATH but also crossed the magical mark of $ 2,000. This is the first time in history that it has happened. In the current situation, this is not at all surprising, as investors are trying to protect their assets from inflation caused by the huge amount of money printed as the central banks’ battle with COVID19 continues.
"Digital gold" - Bitcoin - is also used for the same purposes. This is evidenced by several facts, the most important of which is the growing correlation between BTC and gold. In recent weeks, it has reached its historical maximum, when the monthly correlation reached up to 70%. The growing interest in Bitcoin is also pointed out by ATH - the number of new BTC addresses is rising, the increase in trading on cryptocurrency exchanges or the doubling of the price since COVID-19 has been officially declared a pandemic.
It is therefore clear that investors perceive Bitcoin and gold as a safe haven, assuming that both assets have a limited amount. For Bitcoin, its final amount has been set in advance at 21 million, which will be mined until 2140. Gold and Bitcoin are therefore currently the exact opposite of FIAT currencies, which are currently printed in millions to billions per day, and no one knows when central banks will stop this.
Inflationary monetary policies, coupled with supply shocks, cause prices of goods and services to rise sharply. That is why no one can be surprised that in these conditions, investors turn to gold and Bitcoin, which will not only serve them as asset protection but also as a hedge against an unstable financial situation.
However, Bitcoin offers investors much more. In addition to significant price growth potential, Bitcoin combines relative stability with relative variability, causing investors to perceive Bitcoin as a stable hedge against the inflationary US dollar. This plays the biggest cryptocurrency in the carat especially in times of financial chaos that we are experiencing now.