How The Impending Economic Recession Will Affect Bitcoin
By CryptoMood on Altcoin Academy
In 2009, Satoshi Nakamoto unleashed the Bitcoin whitepaper as a response to the global financial meltdown and the irresponsible centralized entities that caused it.
Ten years later, amidst a sea of geopolitical turmoil, Bitcoin will get its first test against the very situation it was created to protect us from.
The Signs That Point To A Recession
It’s important to note that despite hyperbolic words such as “collapse” & “meltdown”, recessions don’t happen in the snap of a finger. There are always red flags that give us warning signs along the way. In 2007, even before the crash, unemployment had already begun to rise, the housing market was unstable at best, and the national deficit was skyrocketing.
This time around is no different. The main culprits that experts are pointing to this time are the U.S-China trade war, the hyperinflation crisis in Venezuela, & freefalling stock markets that we already mentioned in this CryptoMood article. It’s clear at this point a recession is coming. The only question is when.
A Historic Hedge
Although Bitcoin was created in response to one of the worst financial meltdowns ever, it has yet to exist in the time of a global financial collapse of epic proportions. This makes for a very interesting experiment. Can Bitcoin fulfill its destiny and save the world this time around?
The Anti-Bitcoin Argument
A small minority of experts make the case that an economic recession would actually hurt Bitcoin. Their claims are that no one would dare put their hard-earned money in an even more volatile asset during a recession. They also make the case that current Bitcoin HODLers would sell their BTC in desperate times to buy food and other necessities. On the surface, it seems like a very logical argument. However, what it forgets to factor in is that the majority of Bitcoin is held by extremely wealthy early investors. 4% of Bitcoin wallets hold 96% of all Bitcoins. Given how extraordinarily wealthy these individuals already are. It’s hard to imagine that they’d need to capitulate for daily living expenses in the event of a crisis.
The Pro Bitcoin Argument
The more pro-Bitcoin argument, which not surprisingly most in the cryptocurrency community hold, is that an economic collapse would be the best thing that could ever happen to Bitcoin. Part of the reason for this is because we actually do have some historical precedent to draw from. During the 2013 Cypriot financial crisis when the government literally stole money directly from the accounts of Cypriot citizens, Cypriots responded by buying Bitcoin en masse which lead to one of the very first major bull runs in the young life of Bitcoin. Bitcoin skyrocketed from double digits all the way to a peak of $1,300, before the Mt. Gox hack which caused the first prolonged bear market. In more recent times, we’ve seen Bitcoin trading volume surge in Venezuela and Turkey after their respective currencies took turns for the worse. Aside from historical precedent, we also see an influx of institutional investors from traditional markets take an interest in crypto. Yes, Bitcoin is highly volatile, however with all other currencies and assets in such turmoil, there may be no better hedge than Bitcoin.
Conclusion
An unprecedented showdown between a collapse of epic proportions, and a decentralized currency destined to hedge against it will be an interesting spectacle to unfold for sure. It could even secure the future of crypto. If Bitcoin proves to be the ultimate hedge that many in the crypto space are hoping for, it could even pave the way for more global adoption and legitimization. After all, Venezuela has even declared Bitcoin official legal tender following the meltdown. No one knows exactly what will happen, as a lot of market movements are based on sentiment.
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