Financial Crisis and its effect on Bitcoin
Bitcoin which is also known as BTC is a cryptocurrency — a digital currency that was created in the year 2009. Bitcoin’s whitepaper is said to be mysteriously developed by a pseudonymous developer named Satoshi Nakamoto. Bitcoin holds the purpose of use for different reasons — one could utilize to experiment, to purchase online, to invest, and many such reasons. It lays lower transactional fee and its operational on decentralized authority. BTC used the technology of Blockchain to be created, distributed, and traded upon through the utilization of the decentralized ledger system. Bitcoin is the world’s largest and popular cryptocurrency.
Bitcoin’s Genesis Block
Also Read, Will Bitcoin Ever Replace Fiat?
Financial Crisis is a state of a situation where the assets of the financial sector lose part of its nominal value. It creates a phase wherein the assets or the institutions are over-valued and consists of a bank run or panic situation wherein the businesses, investors or consumers withdraw or sell off their assets in the fear and concern that its assets will be devalued or its value will drop eventually if they continue to stay in the Financial Institution.
Many countries during the economical crisis end up tightening the financial assets such as imposing control on the capital. For instance the stock market crashes, financial bubbles burst, currency crisis, credit crunches, and so forth. Financial crisis can be for a single country itself or could be regional or worldwide and if not taken care of can lead to recession or depression.
Bitcoin and the Financial Crisis
The financial crisis has an impact on every asset that relates to the stream of finance. On the other hand, Bitcoin is stated to be a standalone even for global crisis situations.
Charles Schwab’s report published in the year 2019 stated that none expects Bitcoin or any other cryptocurrencies to be the first choice for the investors but would surely receive an acceptance amongst the others even though it might hold a small percentage.
Bitcoin is viewed and said to be the ‘next currency of value’ and it is rightful for many reasons. Bitcoin is said to be more advantageous than the traditional fiat for various reasons such as it is not controlled by a central authority. The medium of exchange in Bitcoin is also very accessible than the traditional fiat as it can be bought, sold, crypto-traded, transacted, or exchanged online. Bitcoin has certain beneficial factors such as storage, security, portability, divisibility, mode of transaction, finite supply, and many more. People have suggested the utilization of bitcoin or any other cryptocurrency much viable in the time of crisis.
A financial crisis and bitcoin in a way have been correlated, for instance, when in the year April 2013, the banking crisis hit Cyprus and it leads to a hit in the price of cryptocurrencies making it higher.
Even also when the financial crisis hut Argentina, it was said by the reports that the government of the country stopped its population from utilizing the U.S. Dollars which apparently boosted the activity of the usage of Bitcoin. So and so it was even the leader in the ‘Bitcoin Market Potential Index’ (BMPI). A report that stated the bitcoin’s economy for the potential gain by the experts from the London School of Economics.
Just like everything else, there are drawbacks such as the volatility nature of the Bitcoin. Even if no central authority is attractive but also it is risky as it is not regulated or backed can bring potential threats into the system. Also with no governance, it is not possible to tax and that would affect the revenue and functioning.
Bitcoin also can be considered to be a high-risk investment as it is a highly speculative asset and is driven by the demand and supply chain.
Bitcoin is not regulated by a central authority and this can lead to various risks such as security, fraudulent activities, malware, and operational errors, Ponzi schemes, and so forth.
Many traditional investments are insured by the number of schemes and policies wherein with cryptocurrency it is self-insured and is not safeguard by the protection of the federal or government.
Alex Gurevich, the former JP Morgan, Head of Global Macro, had said
“When bitcoin first started trading, I was mostly unaware and fairly agnostic of its value. As a trader, I became interested in its vertical rise in 2013 which was followed by a bear market in 2014. Notably, its drop found support; it didn’t continue to fall to permanent obscurity below the event horizon. Instead, it stabilized, put a solid double-bottom in 2015, and started to creep up. This trading pattern is consistent with precious metal behavior, only compressed to a shorter horizon. For example, […] the slow consolidation in gold after the spike of 1980.”