Bitcoin’s Tightening in the face of Central Bank’s QE

The latest report from Grayscale Insights has focused on the merits of Bitcoin’s Quantitive Tightening vs. Central Bank’s Quantitive Easing to explain to investors and the general public the different features of the halving event which will decrease the supply of new Bitcoin entering the market as opposed to ever-increasing fiat money creation through the central banks.

Grayscale state they produced the report as they believe it is “…important for investors to understand the effects of government monetary and fiscal intervention, particularly in the context of digital currencies like Bitcoin and the unique attributes they possess.”

The Bitcoin Hedge

Grayscale, who are thought to have purchased 50% of all the Ethereum (ETH) that has so far been mined in 2020, are the world’s largest digital currency asset manager and hold around $3.3 billion in assets under management spread over a range of cryptocurrency-specific investments.

Investors in the company’s products are believed to include a number of high-profile and high-worth individuals. In successfully working with regulators, Grayscale have become an effective bridge between the traditional stock exchange model and the emerging world of decentralised finance.

Citing credible sources, the latest report clearly describes how governments in certain scenarios will, through the central banks, enact Quantitive Easing (QE) that rapidly increases the fiat money supply but at the same time destroys its purchasing power.

Despite the erosion of value in the fiat currency that QE causes, Grayscale note that during this current financial crisis investors have rushed to the world’s reserve currency, the USD, as a potential safe haven.

However, Grayscale note that “…it is crucial to be mindful of the risk of monetary debasement and for investors to take action on ways to hedge their exposure and build more resilient portfolios…[and]… fiat currency debasement reinforces the value of alternative money that is less susceptible to government or central bank policies.”

It is in this macroeconomic environment of central bank QE that Grayscale highlight the potential benefit of the upcoming Quantitive Tightening (QT) that Bitcoin will experience through this month’s halving.

In comparing an expandable currency to a fixed supply one, Grayscale conclude that we should question whether “…the fiat currencies will retain their value…” while Bitcoin has already shown the resilience to become “…a safe haven while maintaining an asymmetric return profile.”