Will a Recession Sink the Cryptocurrency Market?
In a tumultuous day of trading, the Dow crashed by 800 points, yesterday, as an ominous recession indicator came to life. For the first time since 2007, 10-year bond yields dipped below 2-year bond yields 😵.
For the record, every time that happened in the last 50 years, a recession followed 📉. We’re the first ones to say that past performance doesn’t indicate future results, but hey, you’ve got to admit that’s a pretty rockin’ track record.
It isn’t just the US standing on the cusp of what seems like an impending recession. Bloomberg had this to say in wrapping up the world’s financial woes:
“China reported the weakest growth in industrial output since 2002. Germany’s economy shrank as exports slumped, and euro-area production plunged the most in more than three years as the overall expansion cooled.”
So, yeah, not looking too hot out there. What does it mean for the cryptocurrency market? Yesterday, BTC $0.00 dropped below $10,200 while ETH, XRP, EOS, TRX, XTZ, and several other blue chips fell off the proverbial cliff. For anyone who is keen to think that crypto markets are decoupled from traditional markets – think again 😳.
At a very fundamental level, the fortunes of all markets are tied together by whichever is the true hegemonic power. While we love crypto, it would be an outright lie for us to claim that digital assets assume more importance, economically speaking, than traditional global markets. With a total market cap that is less than Amazon’s, the cryptocurrency market pales in comparison to global stock markets, which are valued somewhere north of $60 trillion.
Bitcoin is just a drop in the bucket compared to the squid zillions at play in the bigger picture around the world. For those of you who, like us, are living and breathing crypto every day, this may be a hard fact to accept. However, being aware of it will strengthen your position and keep your hand steady. There is nothing financially worse than being caught by surprise.
- BTC may act as a store of value during a recession
Bitcoin was born along with the last global recession back in 2008. Satoshi understood the ill effects of centralized finance and knew that bankers were sending the world economy straight for the dumpster.
While the Great Recession hit hard in countries around the world, BTC $0.00 gained notoriety at first, and then real value right around 2013, when signs of relief from the recession first flickered. The rest of the digital asset market as we know it today emerged during a period of economic expansion and rebuilding in the US, Asia, and many European countries.
As such, the cryptocurrency market hasn’t faced a real recession, so predicting how it will react to a global economic downturn is more or less impossible. However, without recession fears at hand for last year and most of this one, altcoins have performed dismally. It’s highly doubtful that a downturn of the kind anticipated will help matters on that score.
Bitcoin, on the other hand, may perform better than expected. Safe-haven assets like gold and bonds have rallied in recent days. In 2008, the USD jumped nearly 20% against other currencies. Can Bitcoin make a safe-haven case? 🤔
Well…“Bitcoin is a remarkably stable and reliable store of value” said no one ever. With all due respect to Anthony Pompliano, it’s possible to be bullish on both Bitcoin and reality.
Look, we definitely puff puff pass the crypto hopium 🙏. But believing that people everywhere will suddenly flee for safety into an asset class based on bleeding edge tech defies reason. Then again, if Bitcoin has done anything well over the last decade, it’s defy reason.
Bitcoin’s drop yesterday was understandable. If someone says recession, everyone jumps back. The coming weeks and months will be crucial, though. Do we trend higher as hopes for the global economy sink further?
That’s for time to tell.