Why would a global recession be good for Bitcoin?
Macro trends suggest that a global economic crisis could erupt. Concerns about a global recession have been fueled by the recently published GDP report showing that China grew at its slowest pace last year since 1990. If a global recession occurs in the future, many believe that cryptocurrencies, mainly bitcoin, they would benefit.
The IMF sees a serious slowdown
There are a series of indicators that point to apossible economic recession. In its Perspective of the world economy, the International Monetary Fund (IMF) warned that a Brexit with out agreement could be a serious blow to the British economy. An escalation of Trump’s trade warwith China is also another threat.
The IMF has shared its sentiment in financial markets saying: “Growing trade tensions, along with concerns about Italian fiscal policy, concerns about several emerging markets and, towards the end of the year, about the closure of the US government. EEUU., Contributed to the fall instock prices during the second half of 2018. A series of catalytic events in key systemic economies could cause further deterioration in investor sentimentand a sudden and abrupt revaluation of assets in middle of the high debt burden”.
The statistics released on January 21 show that China’s GDP growth slowed to 6.6 percent per year in 2018, the slowest pace since 1990.
The cryptocurrencies will be pushed up as an alternative to the dollar
If we continue to see a significant decline in economic activity, what could this mean for cryptocurrencies? Ciaran Hynes, managing partner of Cosimo Ventures, said: “Depending on when a recession occurs and what its causes are, cryptocurrencies can have several effects: if are cession occurs in traditional markets in the near future, and the causes are related to an excessive contraction of the money supply in dollars, which wasan important part of the 2008 crisis, then it is likely to rush into scarce cash and decrease the relative market value of all assets that are liquid, suchas gold”.
Hynes explained that all unstable cryptocurrencies could fall sharply and there could be an increase in high-quality stable one slinked to the dollar. Many cryptography holders will not want to cross to fiat, and we can even see a market premium for these scams. “The weakest stable currencies set in dollars, which are only algorithmic, or that do not have a transparent reserve of 100% real dollars behind them, can be tested or even short-circuited until they collapse,” Hynes added.
If the next recession occurs later or is caused by other factors, such as the loss of confidence in the US dollar itself, we may see results very different from those previously stated. Hynes predicted:
“Cryptocurrencies would be welcome and elevated as an alternative to the US dollar. As a result, all stable currencies linked to the dollar could then be sold strongly and tested in their ability to store value. “
Exodus in real world assets like gold
If a global recession impacted the value of the currencies issued by the government and its buying power, we would probably seean exodus in real-world assets such as gold, shared Kai C. Chng, CEO of Digix, an asset tokenization company.
Chng said: “Precious metals have been a historic safe haven in times of economic uncertainty and are largely resistant to fluctuations in international money markets. If a global recession affects the purchasing power of traditional currencies, for those who already underst and the benefits presented by the cryptocurrency, we would expect to see a greater interest in owning bitcoin, while those who are not currently familiar with the cryptocurrency market They probably will. New interest in entering the space”.
According to Bitmex Research, Bitcoin has been marketed as a safe asset in the sky from 2011 to 2013. After that point, it seemed to assume the attributes of a “risk on” asset, for example, avery solid performance in 2017 along with the Large Chinese high-techcompanies. Bitmex Research says that a flight towards security and liquidity would now be negative for the prices of bitcoins and cryptocurrencies. However, if bitcoin could change again and recover as a safe asset in a leveraged environment, it would be very good news for Bitcoin. However, the research group observed that it has not yet seen any evidence of that.
Crypto is a cover against macroeconomic madness
Will cryptocurrencies become a protection against economic collapse? Robert Viglione, co-founder of Horizen, said: “As muchas I want to believe that cryptocurrencies are the ideal asset for disasters, we really do not have enough data to reach that conclusion”. He added:
It makes sense that bitcoin returns do not have covariance with any other asset class so far, but we only have about 10 years of data. My hunch is that as the cryptographic markets mature, they will begin to capture some general correlation of the market. For now, however, crypto is at least a decent coverage in all the macroeconomic madness.
Ned Myers, product manager of Alphapoint, adistributed accounting technology provider, explained that when we think about the state of digital assets in the context of a possible recession, two considerations arise:
First, when the intrinsic value of fiduciary currencies can logically be linked to the credit quality of the underlying sovereign, decentralized currencies may not have the same correlation.
Second, in sofar as security tokens clearly delineate security payment rules and improve the transparency of holdings through distributed accounting books, the accelerated adoption of blockchain technology could improve the transparency of stock holdings, a problem that was part ofthe story in 2008.
Many advocates of cryptography expect the next recession to help push the cryptocurrency into the mainstream. During economic turmoil, investors will always go in search of safe haven assets that are largely resistant to fluctuations in international money markets. So far, bitcoin has shown many characteristics of the last safe haven: like gold.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.