Blog

“A smart investor enters the market when others are feeling negative about it and the value is lower than it’s intrinsic value”

   Blog

“A smart investor enters the market when others are feeling negative about it and the value is lower than it’s intrinsic value”

What will happen with Bitcoin if a recession happens?

The British economy shrunk in the second quarter, and growth flatlined in Italy.

Data published Wednesday show Germany’s economy, the world’s fourth largest, contracted in the three months to June.

The bottom line is that the German economy is teetering on the edge of recession,” said Andrew Kenningham, chief Europe economist at Capital Economics.

Mexico just dodged a recession— usually defined as two consecutive quarters of contraction — and its economy is expected to remain weak this year. And data suggest that Brazil slipped into recession in the second quarter.

Germany, Britain, Italy, Brazil and Mexico each rank among the world’s largest 20 economies.

Singapore and Hong Kong, which are smaller but still serve as vital hubs for finance and trade, are also suffering.

German economy shrinks as ‘golden decade’ comes to an end. While growth has been dragged lower in each country by a specific cocktail of factors, a global manufacturing slump and a sharp drop in business confidence have made matters worse.

China’s massive economy is growing at the slowest pace in nearly three decades as the country wages a prolonged trade war with the United States, which will impose new taxes on Chinese exports in September and December.

“The common feature is the weak global backdrop,” said Neil Shearing, group chief economist at Capital Economics.

The International Monetary Fund last month cut its forecast for global growth this year to 3.2%, the weakest rate of expansion since 2009.

It also downgraded its expectations for 2020 to 3.5%.

Investors are increasingly worried.

The bond market is flashing warning signs and more than a third of asset managers surveyed by Bank of America expect a global recession in the next 12 months. (Source)

What to expect from Bitcoin if a recession hits the market?

It is clear that the world’s economy is going through difficulties.

Bitcoin was born in the middle of the Great recession.

So particularly, Bitcoin didn’t go through any recession time so far and everyone is interested to see how it is going to perform when next one happens.

Before sharing our opinion and theory, we would like to point out that we are not financial advisors and that this post is our own opinion that has informative purposes only.

Bitcoin was meant to be digital gold and its main purpose is to offer people a safe store of value.

A lot of people call it a payment method.

Even though it can be sent in less than a minute around the world, the main purpose is not a payment method.

If Satoshi Nakamoto, a pseudonymous creator of Bitcoin, wanted to make it a payment method, he wouldn’t limit Bitcoin to 7 transactions per second.

Bitcoin is an asset where future generations will eventually consider storing and keeping their wealth.

That’s why we would like to take a look at how did other stores of value perform in the Great recession a decade ago.

How did Gold perform in a Great recession?

Here is the Gold’s chart before, throughout, and after recession.

Was it affected by the recession?

Not much!

The time in recession Gold was going sideways.

It was rejected by $1000 psychological price level that caused correction to $700 but it came back to $900, which was the sideways level for Gold.

On a higher perspective, the recession was nothing more than accumulation time for the continuation of a prior move.

Just after the recession ended, price smashed through $1000 resistance and started an uptrend that lasted more than two years.

How did S&P 500 perform in a Great recession?

After we saw that Gold wasn’t affected in recession time, let’s take a look at how did S&P 500 perform in the time of recession.

The chart shows that those who were storing their wealth in the S&P 500 got hit, losing a big portion of their wealth.

Looking at these two charts, Bitcoin, as a digital Gold, should be okay when a recession happens.

The past performances can’t determine future but they serve us to get a better understanding of what to expect so we can act accordingly.

What are the other factors that may affect the price of Bitcoin in a recession?

When the economy is doing well, the value of the national currency of that country is doing well too.

The economy is not the only factor that impacts that value of the currency but it is one of the most important.

In the recession time, as the economy goes through hard times, the fiat currencies are suffering.

How does the weakness of fiat currency impact the value of Bitcoin?

Currently, we are using fiat currency to express the value of Bitcoin.

We are pairing Bitcoin with the fiat currencies to express its value.

Maybe, in five years we will use something else to express the value of Bitcoin but at the moment BTC/FIAT pairs serve us express the value of Bitcoin.

If there is an increase in the demand, the value of Bitcoin will go up that will cause the value of BTC/FIAT to go up as well.

But the increase of demand for Bitcoin is not the only reason for the value of BTC/FIAT to go up.

If the value of fiat goes down because of some reason (f.e recession), the actual value of BTC/FIAT pair goes up.

Conclusion

These are two very important factors that may drive the price of Bitcoin in the times when the recession happens.

According to them, holding Bitcoin throughout the recession time shouldn’t endanger your wealth and should be better option than storing wealth in fiat that is highly inflated and debased.

As mentioned above, we are not financial advisors and all the decisions you make should be aligned with your own system.

If you’ve got some value from the post, don’t hesitate to share with your friends.

Make sure to check out the links below for more valuable content.

Important links

Cryptocurrency Course (Click Here)

Crypto Trading Course (Click Here)

Position Size Calculator (Click Here)

Crypto Trading Journal Software (Click Here)

This Post Has 3 Comments

  1. thanks! I’ve come to believe I should tell whomever I care for about this topic.
    Accumulate precious metals and crypto people!!

    1. Yeah, I total agree with you!

Comments are closed.