Recession and market turmoil unavoidable however Bitcoin has a competitive edge
Image source: pixabay
Talks of a US recession is no longer a speculation as David Rosenberg, Chief Economist and Strategist of Gluskin Sheff, thinks that [US] "will be going into recession ... this year."
"We've got more than 80 percent chance of recession just based on the fact the Fed is tightening policy. This tightening of financial conditions that we've seen in the markets is going to end up having a cascading effect on the economy for the first few quarters of this year."
Source: CNBC
Eyes turned as the crypto community wondered if Bitcoin could be the saving grace of the economy. The answer is no, unfortunately. The impact of an economic crisis that is about to happen would be many times the magnitude of Bitcoin's current market capitalization. Collateral damage from the bear market is expected to affect all market players.
A report on cryptobriefing came up with two possible scenarios for recession:
- Liquidity crisis
- Sovereign debt crisis / currency crisis
In a liquidity crisis, a force-sell situation could happen and stored assets would have to be sold to clear debts. Investors who have been trading short are likely at higher risk. Selling Bitcoin during this period would likely not be beneficial for its prices.
Image source: pixabay
A much larger recession that spills over to central banks could cripple the value of fiat currencies, hence Gold and Bitcoin were expected to become safety havens as a store of value. In the past 3 to 6 months, India has increased its gold reserves by $167 million and Russia increased by 7 percent. However countries facing crisis such as Venezuela, have been actively selling gold where rampant hyperinflation and poverty spreads across the country. This does not bode well for as it pulls the income gap wider apart.
Bitcoin as a form of 'digital gold' has never been fully stocked up by national reserves. The people's trust on fiat has always remained strong over the years. When this so-called trust wears down and becomes paper thin, Bitcoin's decentralised and deflationary properties would become a shining pillar of hope.
Even though Bitcoin's role in a recession is limited, the shift towards contactless payment and virtual storage are concepts gradually accepted by the people. Whether Bitcoin's value rises or falls, I am going to continue to hodl and use BTC in the future. Or at least until a better cryptocurrency is created.