In this article we are going to discuss the looming economic dooms day clock, how Bitcoin could respond over the coming years, and what’s going on with Bitcoin currently.
Nothing should be considered investment of financial advice. Enjoy the ride.
Economic Impact On Bitcoin
News is flying about a world economic downturn approaching right around the corner. This means wide spread FUD is starting to hit not only the crypto market, but mainly the traditional market. The next 2 to 5 years are going to be game changing for the entire world and could heavily impact the progression crypto has made in the past 10 years.
If we recall, Bitcoin was originally created to get away from the traditional banking and finance infrastructure. This infrastructure is characteristically flawed through a system of imaginary checks and balances that all fall through the floor when asset prices deflate and people start defaulting on loans, credit, and debt. The individuals first start to systematically suffer through monetary squeezing: Gas prices rise, interest rates go through the roof, food prices increase, and these things organically lead to businesses in part laying off employees to compensate for rising costs on their end.
This circle continues until it spirals out of control with entire banks requiring bailouts and the entire global economy facing a harsh economic recession. But, what about Bitcoin?
How Will Bitcoin Fair In a Recession
A huge question that is completely unanswered is: how will Bitcoin fair in a recession? The common assumed response is very well due to its natural scarcity, immutability, and commodity like structuring. Most investors naturally relate Bitcoin to gold which fairs very well in economic turbulence because investors hedge their wealth away from directly market paired assets like fiat, stocks, and other financial vehicles.
Gold, silver, platinum, and even oil at times are a great hedges against market uncertainty. This is mainly due to the physical properties each one of these assets possess, but what properties does Bitcoin possess that will prop it up against a de-trending market?
The entire reason commodities work as a hedge is due to their additional properties and general sentiment surrounding the assets. Bitcoin is quite unproven in this respect. For instance, for the entire 10 years Bitcoin has been in existence, the market has been trending upwards. Not only that, the market has reached all time highs signaling that global wealth in general is at an all time high. Your brain should automatically then think, what if this is the peak for crypto then?
With all of this additional wealth, there needs to be outlets and venues for it to flow to. One of those venues is speculative investments like cryptocurrency which in theory could be propping up the market artificially.
Crypto Needs To Be Uncorrelated With The Market
In order for Bitcoin and other digital assets to maintain their growth through the pending economic retracement, the digital economy needs to stay as uncorrelated with the traditional market as possible. This means the less leverage big money has over the crypto market, the better. This is because if the market collapses, the big money players will look to liquidate unfamiliar and least trusted assets, namely crypto.
Thus, big money entering the market, ETF’s, trading desks, and any other on boarding system might actual serve to hinder the crypto market growth in the upcoming market shift. This is only one perspective. In contract, these on ramps could also serve to provide direct access for investors to move money out of the market and away from traditional fiat to a more global scale digital currency, Bitcoin. Like I stated earlier, no one really knows how the crypto market will truly preform during a market restructuring.
Regardless of the right answer, we must consider every idea and perspective in order to accurately invest with confidence. The rest is up to the market.
Currently, the price action of Bitcoin seems to be met with lower highs and less volatility day by day. Similarly, the trading volume seems to be diminishing slowly but steadily. Contrary to expectations, the altcoin market has suffered dramatically as Bitcoin seems to continually bound off of its $10,000 support level without fail. Yes, the price will quickly break into the $9,000 level, but that comes met with a swift buy order from a whale or institution propping up the grandfather currency back to the $10,000 levels.
Moreover, Bitcoin seems to be resembling the 2016 price action chart. A graph from CMC is listed below detailing the 2016 calendar year price movement:
Assuming this trend continues with the strong year to year comparison, we could be met with a very favorable Q4 leading to organic price growth towards the $13,000 to $15,000 levels. Of course, historical data is no indication of future price movements, but it is interesting to see the resemblance in the market movements through August of both years.