According to banking experts, up to 20% of all US dollars in existence today were printed in 2020. This has led a number of corporations, desperate to preserve their liquid assets from erosion, to exchange some of their cash and bonds for selected cryptocurrencies.
One in five dollars currently in circulation was created in 2020
The US Federal Reserve printed unusually high amounts of money to support the coronavirus-stricken economy in 2020. So much so that data released from the Federal Reserve showed a broad measure of the stock of dollars, known as M2, increased from $15.34 trillion at the start of the year to $19.19 trillion in December. The increase means approximately one in five dollars currently in circulation was created in 2020.
M2 includes physical notes and coins, banks reserves held at the Federal Reserve, bank accounts, and money market mutual funds. A narrower measure of money known as the monetary base or M0 – which is physical money and bank reserves rose from $3.44 trillion in January to $4.8 trillion in August, which is a 28 per cent jump according to the latest figures available.
Bitcoin smashes the $58,000-mark.
Such has been the shift from cash and bonds that Bitcoin had a fantastic run in February, from catapulting to a market capitalisation of $1 trillion to smashing the $58,000-mark.
The month also saw major conglomerates such as Tesla and Mastercard adopt the cryptocurrency, while MicroStrategy reinforced its support for bitcoin by adding to its existing pile.
In February, the price of bitcoin jumped more than 50%. As of 4 pm ET, on the last Friday of the month, bitcoin was trading lower by 5.54% to $46,515, a 15% fall compared to the previous Friday. Despite this, Pankaj Balani, CEO at cryptocurrency derivatives exchange Delta Exchange, said the case for a more substantial rally in bitcoin remains intact despite the recent correction.
“This is only the second correction in bitcoin prices since November when bitcoin broke above its previous all-time high and started a new rally,” he said. “One can expect a short-term consolidation in the price of bitcoin around here,” Balani noted that the $40,000 level has become a strong psychological support for the digital coin and will be challenging to break in the short term.
Warren Buffett describes cryptocurrency as “rat poison”
Further defence and support for bitcoin came in the shape of veteran investor Bill Miller who acknowledged Bitcoin’s strong prospects in his recent blog, repurposing Warren Buffett’s earlier dismissal of cryptocurrency as “rat poison” to underscore his own faith in the currency.
The former Legg Mason investment chief and Miller Value Partners boss pointed out that Bitcoin has outperformed all major asset classes over recent years. The digital coin currently boasts a more significant market capitalisation than Buffett’s Berkshire Hathaway conglomerate, even though it’s yet to be widely adopted.
Miller further added that the Federal Reserve is threatening to erode the dollar’s value with rock-bottom interest rates and continued liquidity injections into the US economy.
Bitcoin could be rat poison, and the rat could be cash.
Such is the pressure on the dollar it has pushed the likes of Square and MicroStrategy to shift some of their cash into Bitcoin to lessen the impact of depreciation, said Miller, who continued that Bitcoin is “best thought of as digital gold”, yet it has several advantages over the haven metal.
He further went on to say that if more companies swap cash for crypto, “the current relative trickle into Bitcoin would become a torrent,” he also added. “Warren Buffett famously called bitcoin ‘rat poison,’ well, perhaps he may well be right. Bitcoin could be rat poison, and the rat could be cash”.”