Bitcoin Reminiscent of 'AGAIN 2017'... Doubled Since March

Liquidity Increases and Zero Interest Rates Become Common Due to Government Policy Responses Worldwide
Gold Gains Spotlight as an Inflation Hedge Tool

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[Asia Economy Reporter Minwoo Lee] The price of Bitcoin, the leading virtual currency (cryptocurrency), is rising rapidly. This is analyzed to be because governments around the world are injecting massive liquidity funds to overcome the economic crisis caused by the novel coronavirus infection (COVID-19), drawing attention to Bitcoin as an inflation hedge.

According to Upbit, a domestic virtual currency exchange, as of 11:30 a.m. on the 9th, the price of Bitcoin was recorded at 11.85 million KRW. Compared to the annual low of 5.49 million KRW recorded on March 13, it has more than doubled. The previous day, it rose to 12.16 million KRW, the highest since September 21 last year. This trend is reminiscent of the steep price increases seen in 2017.

SK Securities identified four major factors driving the price increase: ▲ anticipation of the halving (period when issuance is reduced by half) ▲ the visibility of digital currency issuance by various countries led by China's Digital Currency Electronic Payment (DCEP) ▲ inflation hedge ▲ abundant liquidity. Among these, the most effective factor was seen as the inflation hedge. It is difficult to simply discuss price increases due to the halving which reduces supply, and it is also hard to say that abundant liquidity has flowed into the digital asset market because new account openings are currently difficult.

Recently, countries have been implementing policy responses to prevent the economic crisis caused by the spread of COVID-19. In this process, massive liquidity funds have flowed into the market, and zero (0) interest rates have become common. Expectations are growing that the U.S. Federal Reserve's balance sheet will exceed $10 trillion (currently around $6.7 trillion). As central banks around the world pour liquidity, a decline in currency value is considered inevitable.

Researcher Daehun Han of SK Securities explained, "Since there is no inflationary pressure yet on the cost of living, it is difficult to say that inflation will occur simply due to liquidity supply, but since the decline in currency value has already begun, inflation will become a major topic in the asset market in the future," adding, "In this situation, gold and Bitcoin are attractive inflation hedge tools."

The emergence of central bank digital currencies (CBDCs) issued by countries led by China is also increasing interest in Bitcoin. In Korea, the amendment to the Act on Reporting and Using Specified Financial Transaction Information (Special Financial Transactions Act), which imposes anti-money laundering obligations on virtual currency operators, was passed in March, reflecting a trend of incorporating virtual currencies into the regulatory framework worldwide. Researcher Han said, "The recent trend is similar to the rise in gold prices in the 1970s," and predicted, "Once virtual currencies are fully incorporated into the system, their attractiveness as an inflation hedge will be further highlighted, and abundant liquidity will flow in."