The debate between cryptocurrency and Fiat currency has just got interesting. Especially in the wake of the coronavirus epidemic, which has literally devastated our overall economic scenario, questions are now put up against the efficacy of the fiat currency to save our global financial system. The highly contagious disease has virtually put a full stop on businesses with most of the production and service activities cease to be operational.
Amid such doom and gloom, most nations are scrambling to hedge their economies against the devastating impact of coronavirus. Rescue packages are being announced as central banks come into action to support their dwindling economies. One such significant announcement has come from the Federal Reserve, which has announced that it is going to infuse infinite currency into the system. This, in turn, poses serious questions about the valuation of Fiat currency.
Law of Economics
It is a well-known law of Economics that an increase in the supply will have a negative impact on its demand and vice versa. More money you put into the system, less desirable it will become. The same law applies to the valuation of Fiat currency and the decision of the Fed to immediately supply $1.5 trillion is bound to have a negative impact on the dollar’s value. This decrease in the value of the dollar is expected to prove beneficial for other avenues of investment, such as cryptocurrency, gold, and other commodities.
Specifically, the value of digital coins is expected to rise as investors will switch to the safe heavens of investment where they can earn more profit on their investment. It is true that the coronavirus pandemic has also had some negative impact on the cryptocurrency market, but then one needs to appreciate the resilience of the digital coins, which bounced back from the initial shock immediately. The recovery was quick, especially when compared to the stocks in the equity market and now the crypto market is looking well-placed to consolidate its position as the growth curve of coronavirus infections seems to flatten out.
Another important indicator that points towards an increase in crypto valuation is the upcoming event of Bitcoin halving, which will sometimes happen in the month of May this year. Post the event, the rewards associated with the mining of Bitcoin will be halved from its current level of 12.5BTC to 6.25 BTC. As per the analyst of coinlib.io, this will constrain the supply of the digital coin in the market, thereby making it more valuable. The increasing adoption of Bitcoin and other digital currencies across the globe is also expected to give a fillip to their value. Governments and Central banks are now realizing that the adoption of cryptocurrency is only going to favor them with high efficiency, low operating cost structure, and global reach. In sum, the coming time seems to be more favorable for cryptocurrency, while the fiat currencies embrace uncertainties and turbulence amidst speculation of a global financial meltdown.
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