Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.

Nobody could have imagined the Coronavirus crisis. But the scope and damage are enormous. The Black Swan event is here. Nassim Taleb calls it a White Swan, an expected pandemic that will eventually happen. You can buy his book to learn this distinction. Governments and people were caught off guard. The crisis started at the beginning of 2020. A few months later, it has turned the world economy upside down.

The Coronavirus crisis offers important lessons for crypto. It discredits some foolish ideas that we used to believe in.

Bitcoin is not money during a crisis

Bitcoin is supposed to be a Store of Value. Crypto sphere has pitched it as an uncorrelated asset, a safe haven, a hedge, an insurance against a global economic crisis. False! The opposite has happened, at least, in the short-term. People flee to cash. They dumped their positions in equity and Bitcoin. For a few weeks, equity and Bitcoin prices are highly correlated.

During this crisis, Bitcoin volatility increased dramatically. It dropped more than 50% (from 8k to 4k) on March 12, 2020. The lesson here is Bitcoin is not money during a crisis. People need cash to pay for their essential expenses (e.g. rent, food).

It’s time for the crypto community to discard some thesis about Bitcoin.

  • Bitcoin is an uncorrelated asset. (It’s not.)
  • Bitcoin is a hedge against an economic crisis. (It’s not.)
  • Bitcoin volatility will decrease as Bitcoin matures. (It won’t.)

I remain bullish for Bitcoin in the long-term. But I revised my view. Here are my current thoughts.

We are heading into a deflationary crisis

When the US government announced the 2T stimulus package, people flooded Crypto Twitter with the Money Printer Go Brrr meme. This meme quickly died as the crypto sphere quickly realized the scope of the Coronavirus damage. This is no ordinary economic crisis. The US economy has shut down. Consumptions slow to a halt. People briefly spent more money to stock up groceries at the beginning of the shutdown. Consumptions in other categories, like entertainment and travel, are down from 20% to 90%. We see reports of farmers dumping milk and eggs because consumptions have gone down. When demand drops and supply remains the same, prices have to drop to encourage people to spend. Commodity prices will drop. Companies will make less money. Then, wages will drop. This is a vicious price decrease cycle. We are heading into a deflationary crisis.

It’s likely that a 2T stimulus package is not enough. The Coronavirus crisis shut down the world economy for months. It probably destroyed a lot more wealth than 2T. We probably need more than 50T stimulus to just get the US economy back to its previous height. There is an immense challenge to distribute the stimulus money fairly. The roadblocks can cause prices to drop for many months. The crypto sphere has expected rampant inflation to make the case for Bitcoin. Policymakers may overshoot and cause rampant inflation. They may become corrupt and distribute money unevenly. Bitcoin is a good hedge against this. But the opposite is happening.

We need an inflationary cryptocurrency

The Coronavirus crisis highlights the importance of inflation. It is the force to drive economic development. Deflation can send an economy into a long-term recession with vicious price decrease cycles. We experienced these issues during the Great Depression during the 1920s. The gold standard exacerbated the Great Depression. We’ve learned many lessons. Some people ignore these lessons to profess their ideology. Deflation is a real threat. Bitcoin does not fix this.

It’s time to discard the idea that Bitcoin is the ideal form of money. It is a good starting point to create a new monetary system. But its deflationary property makes it volatile. It is not suitable as a medium of exchange. We need crypto experiments with inflation.

Bitflate is a cryptocurrency with constant inflation of 7% per year. Its goal is to be a Medium of Exchange.