Rumors have started to circulate around the internet that a new global recession is right behind the corner. Although these rumors haven’t contributed much to the decline in the stock market in recent days, it needs to be mentioned that investors are starting to be on edge nowadays.
Indicators are showing that economic growth all over the world is starting to stagnate. Developed regions like the United States and the European Union are barely hanging on by reducing interest rates to incentivize their local populations somehow to spend more. However, whether or not that will help the no years of issues is yet to be answered.
Many crypto enthusiasts, in the midst of this chaos, have voiced opinions that cryptocurrencies would be the safe haven of another global economic recession, that somehow cryptos will act as the only winners in a market where everybody is losing. But we need to consider quite a lot of factors if we want to be sure about this statement.
Is there a correlation between the stock market and cryptos?
Many crypto “experts” claim that whenever the stock market is down, investors flock to cryptocurrencies to somehow make a quick buck. That has already been proven to be false. Stock traders stay right where they are and all they do is short the assets that are taking the majority of hits, or simply diversify into different company shares.
The same can be said about crypto holders. There are very few who HODL a coin when all it has is a downward spiral in front of it.
Therefore it’s expected that, just like in 2008, the majority of stock traders will try to diversify into companies they believe will survive the onslaught, but we’ve already seen that there was no place to hide.
Cash is king during a recession
They don’t say the phrase “Big banks don’t fail” for nothing. During a recession, the best place to hold one’s asset is in banks as cash. It won’t be long now that traders will start liquidating most of their assets and hoping to be saved by the banks’ interest rates.
Needless to say, there will be very few people who will benefit from the upcoming recession, especially those who believe that Bitcoin will be the safe haven they’re looking for.
Experts have already mentioned that a recession is like a blessing for anything that has high liquidity. And what has high liquidity? Cash, of course!
Even though we all want it, Bitcoin simply can’t come close to the level of liquidity that fiat currency has. Therefore it will be the “asset” that everybody will cover in a significant market downturn.
An asset like Bitcoin would just be a means to an end, while fiat will represent a solution.
The only cryptos that could potentially see more people involved with them are stablecoins, and we all know that it’s nearly impossible to generate profits from a stablecoin, that’s just not what they’re designed for.
Bitcoin used to have that potential
BTC actually used to be that safe haven asset back in 2011, when the market was still in the process of recovering from the recession. In fact, it can be said that Satoshi developed BTC as a means to avoid the next recession, that he (or she) undoubtedly predicted would happen quite soon.
But at that point, Bitcoin volatility was maintainable, it was basically a guaranteed profit, and the margin of growth was pretty much unlimited. Now though, when there are much better cryptocurrencies out there in terms of scalability, it’s unlikely that Bitcoin can even handle being a safe haven, that role would most likely belong to a third-generation cryptocurrency like Cardano or IOTA, but that’s just factless pondering.
Can Bitcoin even compete with gold?
The biggest competitor for market dominance in a recession is gold, and it always will be as long as we as a species see it as something valuable. The prices have already been rising at an immense level, to a point where people, having stayed in a net loss for years, are finally able to see some profits.
Remember though, and this is just anticipation and nothing less, imagine how big the demand will be when the recession actually hits to its full extent.
Considering the relationship between traditional financial market investors and Bitcoin, it’s much more likely that veterans will opt for gold rather than something that is still in its “infancy”.
Bitcoin will not be a safe haven anytime soon
Although we all want Bitcoin to have the capability of being a safe haven for an economic recession, which is basically its function as an asset, it’s simply not achievable at this point.
The scalability issue will catch up to the coin at one point or another. The network will become so slow that traders will simply start comparing it to fiat transactions, and when there’s a recession, fiat will always beat crypto in terms of liquidity, so why not go with fiat in the first place?
That’s what I believe will be the general reaction of the market should the recession hit anywhere in 2019 or 2020. Other than that, it depends on the developments in the crypto industry, which have just now started to their full extent.
Giorgi is a news reporter and financial analyst at www.forexnewsnow.com He has 3 years of experience in analyzing the financial markets of Forex and cryptocurrencies. He also likes making hidden jokes in his articles.