The global dollar shortage is a looming crisis that doesn’t get much media attention. Instead, we keep hearing about the trade war and the seesawing stock market but almost nobody talks about the biggest problem that overshadows them all.
There’s a shortage of dollars in the global financial system. China, one of the countries that sorely needs dollars, has been boosting its gold reserves over the last ten months. According to economist Luke Gromen, the Asian giant may be planning to use the precious metal as a neutral reserve asset as a response to the dollar shortage.
On the other hand, the New York Federal Reserve has been keeping the U.S. financial system stable by pumping billions of dollars daily into the repo market. Wall Street veteran Caitlyn Long took to Twitter to show how the Fed’s balance sheet has suddenly grown while running overnight lending operations.
While the dollar squeeze presents a frightening future, it may be possible that bitcoin holders may be spared from the nasty impacts of the crisis once it gets triggered. That’s according Hans, also known as Hans HODL, a senior quantitative researcher at Ikigai Fund.
When the liquidity crash takes place, it is very likely that people will run to the banks to secure their funds. The bank run will suck the cash out of ATMs, which will likely lead to panic. This scenario is already happening in Hong Kong amid massive protests and political instability.
How did the citizens respond? They bought huge amounts of bitcoin to protect their wealth.
According to Hans, this is something that we can expect once the dollar shortage rears its ugly head. The analyst told CCN,
Bitcoin will be volatile during this phase, but investors would be wise to note that volatility is not always bad. With Bitcoin in particular, the majority of volatility has been to the upside. Look at what’s happening in HK for a microcosm of the global scene.
ATMs out of dollars, local bitcoin volume spikes, protests in the streets. This is a revolution.
During a crisis, bitcoin appears to be the only asset that can help protect the wealth of an ordinary citizen. The dominant cryptocurrency has properties that make it easy to buy and store. The co-founder of MarketOrders Sukhi Jutla elegantly described bitcoin’s portability:
Bitcoin has the advantage of being relatively easy to acquire and exchange. Cryptocurrencies are also highly portable compared to market-resistant assets like real estate and gold.
To address the dollar shortage, Hans believes that the Fed will step up and pump trillions of dollars into the global financial system. He said,
When it comes to macro, it’s QE infinity. Can we print forever? That’s the $100 [trillion] question.
When asked if he believes that the Fed will run more QE programs to combat the crisis, the analyst replied,
They have to, what choice is there?
If QE infinity would be set into motion, one of the biggest beneficiaries would probably be bitcoin. People would likely buy the cryptocurrency to protect their wealth against inflation.
In the end, the dollar shortage puts authorities in a position to print more money or let the system, as we know it, collapse. It’s unlikely they will let the latter happen.
This article was edited by Sam Bourgi.
Last modified: January 11, 2020 2:30 PM UTC