With a new world recession just around the corner many people are wondering a very modern concern: “Does cryptocurrency help during a recession? Well, the answer is somewhat complicated to explain, but for the sake of simplicity, we would say that the cryptocurrency market is volatile and unpredictable.
Bitcoin As A Safe Heaven
Since the foundation of Bitcoin at the beginning of 2009, many doubts and questions have surrounded this new currency. It was sold as a decentralized, anonymous, and safe currency that promised to create a revolution in the world’s market.
As of today, there exist more than 1,000 cryptocurrencies, the three most famous being:
Bitcoin Ethereum Ripple
As Bitcoin’s popularity kept growing, many started using it as a safe haven, a place to invest and to storage their money. Many of Bitcoin’s enthusiasts like Anthony Pompliano advise people to invest in Bitcoin. And since Bitcoin’s value was doing nothing but rising, a lot of investors saw an opportunity to keep their money safe.
Since Bitcoin had this “safe harbor” reputation, and because it’s seen uncorrelated to the regular market, it was believed that during a recession, many people would try to save their money and would enter the cryptocurrency market to remain safe.
But that reputation changed.
An Important Market Drop
In less than 24 hours, Bitcoin’s value had a 50% drop, going from $8,000 to below $4,000. The theory of an uncorrelated currency didn’t hold true for Bitcoin, we didn’t see massive amounts of people rushing to buy this cryptocurrency, quite the opposite.
In the middle of a global market crisis, and with investors worried about losing money, why would they subtract money from the stock market to invest in an even riskier asset? Think about it, what is the fastest asset to liquidate? Bitcoin.
Yeah, many unrelated assets have also dropped. But not at the same level of cryptocurrency. For example, gold only went down 5%. We should have seen this coming, even the Ethereum founder has warned its users that Ethereum prices “could drop to near-zero at any time.”
Other cryptocurrencies have seen a similar drop. Ethereum had a 33% drop and Ripple had a 24% in the market. So yeah, investors have lost millions of dollars during this month.
Is It Over For Cryptocurrency?
Not exactly yet, many cryptocurrency holders still believe in the value of Bitcoin and this market drop can be seen from different angles.
It’s now a great opportunity for newcomers, they can now enter the cryptocurrency market at very low prices, so those who felt that they’ve lost the train can now hop on and see how it goes.
Another great thing that could happen is that cryptocurrency can now be held in small amounts by a large number of holders, as opposed to being held in large amounts by a small number of holders. This means that cryptocurrency can now build itself into a new level of support without the fear of such an extreme future sell-off.
The market will eventually recover, and it’s believed that cryptocurrency could rise again in the future, but don’t expect that to happen any time soon.
We have seen how the cryptocurrency market behaves under a world recession and it’s not quite what we had pictured. The challenge for cryptocurrency now is to find a new way to attract buyers without selling itself as a safe harbor. If you plan to invest in cryptocurrency, do it safely and keep in mind that it could rise immensely as easily as it could drop without mercy.