What Will Bitcoin Do in a Recession?

by Fred Eugene Park 10 months ago in bitcoin

While we see a lot of promise in Bitcoin and various other cryptocurrencies, what will Bitcoin do in a recession?

What Will Bitcoin Do in a Recession?

More than 10 years after the devastating economic recession of 2008 from the collapse of Goldman Sachs and other large financial firms, many Americans and people across the world have an ever-growing fear and distrust for the established banks and financial institutions that also make up the monetary backbone of the global economy. With the implosion of the housing market largely spurring on the decline, many Americans lost their homes and other assets. In a time when parties across the globe are devising new systems of financial commerce and banking, forerunners in the cryptocurrency field, such as Bitcoin, have risen to great prominence. The deviation from fiat currency, by a surprising number of institutions and no matter how large a commitment, has gained cryptocurrencies a deserved amount of attention. The exciting concept behind this alternative currencies can make it hard to weigh the legitimate risks and benefits of investing in them. With the mounting uncertainty of the current market, more people, at all levels of society, have looked to Bitcoin as an exciting way to solve their problems. Though Bitcoin subverts some of the most derided aspects of the traditional banking system, it is certainly not wholly immune to the scourge of a global financial recession. Due to the new territory that institutions like Bitcoin have broken, and the uncertainty of the markets, the biggest question on people's minds is what will Bitcoin do in a recession?

Will Bitcoin rise or fall?

Some financial experts believe that a massive dive in the economy might actually benefit Bitcoin and its investors. More than 10 years after the 2008 global financial disaster, economists are fearful of the potential for a similar possible collapse of the banking system on the horizon. While most ordinary people are perplexed by Bitcoin or think it is absurd, corrupt, or even somehow fraudulent, countless others have taken to cryptocurrency like moths to a flame. Investing resources and funds into this global exchange, crypto has even been recognized by certain corporations and even governments. These companies and governments claim to see the potential of its growth. As a result, the price of Bitcoin rises and falls with the market in the same way that the dollar and other currencies do. If economists are correct in anticipating an upcoming collapse, this could be a make or break time for Bitcoin in equal proportions to what would happen for other forms of fiat currency. Economists believe that such a massive collapse could cause many more countries and companies to adopt Bitcoin. However, analysts also warn that Bitcoin could suffer as much of a loss as established currencies due to the monetary devastation of the financial collapse.

What it would take for Bitcoin to replace the dollar?

Despite the rapid expansion and increased credibility of Bitcoin and blockchain technology, it is also noted that it would take a singular major event for Bitcoin to go mainstream. For many generations, the US dollar has been the standard unit of the global exchange. As the United States continues to increase the National Debt and the internal power structure of the government remains in deadlock, the global economy has seen a profound decrease in investor confidence. Theoretically, an exponential increase in this volatility could open a window of opportunity for cryptocurrencies. Though faith is greatly waning in the strength and future stability of the American dollar going forward in the long term, it would be quite difficult to switch every piece of the global economy to a new unit of measure. Though it is tempting to think that people would be ready to switch to Bitcoin if it was necessary, it would take quite a disastrous market crash to make the people lose complete faith in the dollar. While people are constantly bombarded with figures and graphics showing the status of the market when consulting the news, few attach significance to these fluctuating numbers until the scope of the crash has affected their own financial situation. Though Bitcoin has grown from a small niche cryptocurrency to a thriving, decentralized, and global currency for progressive consumers, institutions, corporations, and even governments in an impressively short period of time, most people remain skeptical and uninformed about the particulars of Bitcoin, as well as other established cryptocurrencies in the global market. As such, few institutions currently have a reason to switch to an entirely new form of currency. If the global economy, or the value of the dollar, were to collapse completely, it may be just the reason why Bitcoin will make a comeback during the next recession.

How we spend it in a recession will either legitimize it or cause it ruin.

While the increased use of Bitcoin by some governments and corporations certainly helps to lend legitimacy and much needed investment to it, citizens would need to use Bitcoin in place of their own currencies to make any and all purchases if it were to have a real impact in the global economy. Without a consumer base to keep it trickling along, it would be impossible to elevate Bitcoin to a legitimate currency comparable to any established fiat currency. If the results of the next world financial crisis are sufficient enough to scare people away from the US dollar, they will have to fully adopt Bitcoin at every level of the economy if they plan to make it thrive as a future financial standard or central bank currency. Just as the commerce of everyday citizens using American money to buy goods and services can dictate its momentum, as well as the rise and fall of the American economy and the value of the US dollar, a Bitcoin-based economy would require steady consumer activity in its ledgers to expand and/or even remain stable. Because it is not largely used by consumers for everyday commerce, Bitcoin is still relegated to the status of alternative currency, failing to garner the same status as true fiat currency used all over the world.

Another point of contention is that people would initially see Bitcoin as nothing more than a technological novelty (if they don't already), rather than a true alternative to fiat currency, keeping them from using it for its intended purpose. As strange as this seems, the reasons why blockchain is recession-proof could be compared to Richard Nixon's decision to reissue the two dollar bill instead of printing more singles to double their potential value. However, people saw this returning note as a novelty item, and rarely used them in ordinary transactions. What was intended to double the value of printing one dollar bills actually created a large amount of paper money that was not being used at all. To that end, there is much debate over what legal classifications can even be applied to Bitcoin and other cryptocurrencies. While Bitcoin claims to be a currency and seems to essentially behave like one, other financial experts argue that the structure and performance of Bitcoin is more of an asset class, and will further a bubble that some day may pop. Until it is universally recognized as a legitimate currency, it would be very difficult for Bitcoin to achieve the level of influence and financial power held by the US dollar.

Some groups have adopted Bitcoin, but the dollar is still the standard.

As has been previously noted, the impressively rapid expansion of Bitcoin and its global financial influence is well under way based off the research and actions of a number of financial institutions and governments, all of whom see the potential value in a future dictated by Bitcoin. Though the American dollar still stands as the standard currency of global markets, the perpetually mounting debts and political instability of the current administration seem to threaten the certainty of this hallowed status. In addition to countries like the US, Canada, the United Kingdom, and others that are less-than-hospitable to Bitcoin, some small governments and companies have begun to use the currency, and far more have heavily researched the benefits and drawbacks of switching to blockchain technology. At certain points in time, Bitcoin has been looked to by many investors and other financial exports as a relative safe haven.

However, as Bitcoin has expanded and evolved, this ability to shelter itself from the mainstream market has waned in recent times. The increased popularity of Bitcoin and its adoption by institutions has fundamentally altered the makeup of the cryptocurrency for investors. With the rapidly elevated reputation and ever-rising financial clout of Bitcoin and other cryptocurrencies, more mainstream investors and influencers have made their way into the Bitcoin investor base, causing greater ties to the traditional stock market and its trends. As a result of this secret and quiet homogenization, the performance of Bitcoin has become increasingly tied to the surrounding economy where the major differences between crypto and stocks are starting to intersect. With the US dollar remaining as the reserve currency of the global market, (at least for the time being) Bitcoin stands as just a widely popular alternative currency. Though we have many working theories at play for the potential outcome, financial annalists and experts still find themselves asking the all important question, what will bitcoin do in a recession?

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Fred Eugene Park
Fred Eugene Park
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Fred Eugene Park

Fred Park is a writer, singer and guitarist with a deep passion for music, sports and history. Fred graduated from Purchase College in 2016 with a BA in history.

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