These are uncertain times for the global economy, a situation that has consequences for both traditional and cryptocurrency markets. And it is that, during the Coronavirus crisis, governments around the world have resorted to monetary issue as a mechanism to avoid the collapse of their economies. However, at the end of the day, is the devaluation of Fiat currencies not an opportunity for cryptocurrencies?
The Coronavirus crisis and central banks
Since March of this year, it was clear that the Coronavirus crisis would not be like other crises that we have faced in the last century. Well, the disease born in the city of Wuhan, has brought humanity to its knees. Forcing billions of people around the world to stay home to try to protect our lives.
This, although it is the right thing to do when faced with a virus that has no means of combating it, generates important consequences at the economic level. Well, by preventing millions of people from attending their jobs, the Covid-19 has affected commercial and manufacturing activities worldwide.
Because of this, most countries face what is expected to be a harsh economic recession in 2020. This could turn into a global depression if it continues for much longer. Forcing governments to intervene to avoid a total collapse of their societies. Using for it one of their best available tools: fiat coins.
And it is that, faced with a virus that forces the paralysis of the economy, the States have implemented multimillion-dollar stimulus plans. First to support all those who are not generating income for themselves and their families during the crisis. And second, to rescue companies that are in trouble by not having sales, therefore needing an injection of Fiat coins.
Devaluation of fiat currencies: an opportunity?
The big problem with these measures are the consequences that an exaggerated issue of Fiat coins could have on their value. Well, as the law of supply and demand indicates. When the supply of an asset increases at a much faster rate than its demand does, the tendency is for its value to decrease.
Thus, already several analysts of the crypto market, including Anthony Pompliano and Changpeng Zhao, have predicted a devaluation of Fiat currencies due to government rescue packages. Which could generate mistrust among the population towards Fiat currencies. Benefitting, ultimately, cryptocurrencies.
Well, if a situation is reached in which more and more citizens distrust their Fiat currencies. The result will be thousands of people looking for an alternative way to protect their capital. Far from the loss of value that they would suffer if they were kept in Fiat currencies.
In this way, Pompliano, Zhao, and those who expect a massive devaluation of Fiat currencies, believe that it will bring a torrent of capital to the crypto market. Increasing the value of currencies like Bitcoin, and increasing its use globally.
Of course, this is not an undisputed forecast. Well, there is another group of analysts who foresee that a devaluation of the Fiat currencies will not occur, quite the opposite. For these experts, in the coming months we will witness a strengthening of the dollar, in the face of an increase in its demand by countries that are trying to reactivate their economies.
So, at the end of the day, we will still have to wait a few months to see who is right in this debate.