Crypto as a Black Swan hedge…. why the next crisis will be a boon for crypto!

Some would say we are long overdue for a financial crisis and economic recession — as we close out 2018, the usual signals are all blinking red — we see sustained and expected central bank rate hikes leading to flattening yield curves, rising market volatility, a decade of cheap money that has created hidden asset bubbles across the globe which may be ready to burst, an escalating trade war between the U.S. and China, rising geopolitical tensions amidst fraying international cooperation and growing populist anger in many advanced economies…

It all paints a troubling picture of a global economy at risk of an impending crisis. But the question that many in the blockchain ecosystem are asking themselves is how will cryptocurrencies fare during the next crisis? What should investors do to prepare?

At Olymp Capital, we believe there is a strong case to be made that the “highest quality” cryptocurrencies will thrive should the global economy experience a sharp downtown. Investors will seek a new store of value when all else fails and will likely turn to crypto assets as a perceived uncorrelated asset class — a thesis seemingly gaining traction amongst the “smart money” crowd, as evidenced by over $7 billion in crypto assets now being held by venture capital firms, hedge funds and private equity funds, according to a recent Morgan Stanley report [1].

With public faith in global institutions already at unprecedented lows, the perceived inability of our institutions to prevent and aggressively respond to the next crisis, may create a permanent shift in the public narrative, a disillusionment with the current economic order where a decentralized peer to peer economy underpinned by blockchain begins to be welcomed by the broader public as a better alternative. A situation Greece has experienced for example during its 2015 debt crisis where bitcoin, decentralized and beyond the capital control of government, acted as a safe-haven alternative alongside gold [2].

More recently, in times of financial panic, we have seen investors turn to cryptocurrencies as a store of value and medium of exchange. Just look at the surge in cryptocurrency buying on crypto exchanges in countries like Venezuela [3] or Argentina [4], both countries going through severe economic stress…the public’s awareness and confidence in cryptocurrencies as an alternative to a fiat currency being debased is growing.

Venezuela Local Bitcoins Monthly Volumes Surge Alongside Inflation

Source : https://diar.co/volume-2-issue-37/

During the next crisis, with U.S. & Euro debt to GDP projected to grow significantly amidst ballooning deficits, could a deterioration in confidence in the U.S. dollar or Euro as reliably safe currencies produce even a small shift in institutional buying towards cryptocurrencies? This new demand could produce a significant rally relative to current prices that would dwarf the 2017 Bitcoin/altcoin rally.

A decade after the Great Recession of 2008/2009 birthed the Bitcoin blockchain, the next crisis may cement blockchain as a necessary step towards an evolution to a decentralized trustless economic future. However not all cryptocurrencies and related blockchain projects are created equal with well over 80% of recent ICOs either having failed or being outright scams, according to a recent study [5].

We believe the next crisis should produce a severe and healthy rationalization of the blockchain ecosystem, surfacing the most promising and sustainable technologies and business models leading to mainstream adoption.

Alex Silva de Balboa contributed to the article’s analysis

Sources :

[1] https://www.coindesk.com/morgan-stanley-says-crypto-is-a-new-institutional-asset-class/

[2] https://money.cnn.com/2015/06/29/technology/greece-bitcoin/index.html

[3] https://cointelegraph.com/news/how-venezuela-came-to-be-one-of-the-biggest-markets-for-crypto-in-the-world

[4] https://cryptonomist.ch/en/2018/09/24/venezuela-bitcoin-2/

[5] https://cointelegraph.com/news/new-study-says-80-percent-of-icos-conducted-in-2017-were-scams