Bitcoin maximalists love it when the masses say its run is over. Reflexively they point to BTC’s multiple resurrections as proof that it is here to stay. And if you look at the current short-term economic cycle Bitcoin has lived in from its existence (2009 to present), it’s tough to argue that Bitcoin has no enduring value.
But if you pull the camera back to reveal the larger, macro economic cycle [], you will see that Bitcoin has yet to be tested in a true bear market.
Bitcoin has grown in the era of cheap money, where Quantitative Easing has provided the world with access to cheap capital.
As the credit markets slowly, but consistently, thawed in the wake of the 2008 financial crisis, people had a little more jingle in their jeans.
In the early days of Bitcoin, it didn’t matter as the technology was relatively unknown and relatively cheap.
But as Bitcoin gained notoriety, it crossed the chasm. Innovators and early adopters who got on board early, acquiring their coins inexpensively via mining and trading, created a market. With the introduction of exchanges liked Coinbase, the early majority—particularly tech savvy millennials, started turning their attention away from traditional investments towards Bitcoin.
All the while, the economy worked its way out of a recession and into the raging bull market we find ourselves in today.
But if you are paying attention, you can hear the call of the bears growing louder. The same folks who correctly called the 2008 crash are predicting an even more massive correction in late 2018. Peter Schiff, Nouriel Roubini, Jim Rogers and Jim Rickards–these are just the more well-known names, but do a little more digging and you’ll find a host of respected economists and financiers imploring people to prepare themselves for the big one—a crash to make 2008 seem like a hiccup.
And the evidence is compelling: rising commodities prices, increased manufacturing costs, a widening trade gap, higher labor costs, and a falling dollar—all leading to rising inflation.
You can feel it: home prices are through the roof, groceries keep taking more out of every paycheck and then there’s the bloated and overpriced stock-market.
And unlike 2008, what worries economists most, is that the same trick that saved us after 2008—printing more dollars—won’t work this time. The dollar is already tanking. China, America’s largest investor, won’t even buy our bonds anymore.
But wait, you say, a lower dollar is great for the US right.? Other countries will buy more of our goods, no? No, they won’t because we don’t make anything they want. We can’t, our labor costs are too high and we don’t have the manufacturing infrastructure to compete.
So what’s this have to do with the price of Bitcoin and, more importantly, it’s utility as a store of value or currency? Everything.
During a bear market, US investors flee from speculative investments to stable performers. Precious metals, commodities, foreign investments—things they can use as a hedge against the dollar. And this will be the real test of Bitcoin’s resilience.
As a global investment—a bridge currency comprised of capital from every part of the world–Bitcoin would seem to represent the ultimate safe-haven. A place to store and use funds that levels out the discrepancies between economies heading into a bear market or entering bull markets.
More fungible than gold, it should be attractive to investors who need to park cash in a liquid investment pegged to the global economy.
The problem is, Bitcoin and the larger crypto market’s recent correction has given investors cause for pause. Those who bought at the frothy peak in late 2017 and sold as the knife fell have lost real money: money they will have a tough time replacing as the bear market materializes.
When the crash occurs—and it will—credit will tighten, jobs will be tougher to come by and cash will be at a premium. And we will finally see what this great experiment is really all about. Will will finally see if Bitcoin is truly a global store of value that people trust when it comes to their financial survival.
The grand experiment will be over. It will be time to perform.
If Bitcoin, or any other cryptocurrency, survives the crash to come, we will never question their legitimacy. But if their value is wiped away with all the funny FIAT money inflating this market, it will be rightly belong planted along side the tulip bulbs Maximalists so badly hate crypto being compared to.