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Home > News > Why hasn't bitcoin soared in the recession


Why hasn't bitcoin soared in the recession


Economists find that the United States will soon experience a recession.Many bitcoin speculators think the price of bitcoin will rise during the recession, but that may be wishful thinking.Cryptocurrency behavior depends on the type of recession the economy is in.In a typical recession, bitcoin would be sold off like any other risky asset, but it would thrive in a currency or sovereign debt crisis.Bitcoin can fight disaster, not recession;When inflation and trust in government decline, it is most likely to rise.

The rough waters ahead

The recession is defined as two consecutive quarters of recession, and we may already see early signs of selling: the s&p 500 fell more than 10 percent in October.Nouriel Roubini, one of the few economists to predict the 2008 housing crash, recently highlighted America's growing fiscal obligations on mortgages, student loans and credit-card debt.He noted that these factors are expected to exacerbate the next recession, which could be worse than in 2008.Roubini believes we will face a financial crisis by 2020.

Other factors, such as a decade-long bull market in U.S. stocks and the fact that the federal reserve has raised interest rates three times this year, suggest the economy could soon experience a downturn.'two things are almost certain :(1) the U.S. economy will slip into recession;No one knows when.

Is bitcoin a lifeboat?

Cryptographers such as Anthony Pompliano have suggested "shorting bankers and using bitcoin as an antitrust hedge".They argue that because bitcoin is disconnected from the financial system and negatively correlated with the stock market, its price will rise if the stock market falls.

Bitcoin has become increasingly tied to the s&p 500 this year (see chart).S&p has not actually had a negative correlation with bitcoin since late 2016, and even then the correlation fell between -0.1 and +0.2, indicating little correlation in either direction.

Bitcoin seems to have less to do with gold than U.S. stocks: an interesting statistic, given that the "bitcoin will rise in the recession" theory seems to be based on its similarity to gold.This, by the way, is also a bad reasoning: gold does not thrive during recessions because its share price is lower than equities.

While gold was a better haven than equities during the liquidity crisis, neither option was optimal.

What will bitcoin do in a recession?

Messari's Dan McArdle points out that the answer depends on the type of recession and the conditions that led to it.The two largest depressions in American history were deflation, and if history is any guide, there are likely to be mild to moderate recessions.

There are two possibilities for a recession:

1. Mild to moderate recession (liquidity crisis)

Sovereign debt crisis/currency crisis

Bitcoin investments have underperformed in situations where a liquidity crisis is more likely, but they could outperform the market in a currency crisis.

A mild to moderate recession (a liquidity crisis) is characterized by a demand for debt repayment and a transfer of cash to repay these debts.Loans are hard to come by, and people give up risky assets in exchange for dollars to pay down debt.This cash transfer reduces the value of risky assets.Bitcoin will be sold in dollars at prices consistent with all other mild to moderate recessions to date.

While most people think tank economy is good news for bitcoin, it's too simple.The most likely thing to happen is that bitcoin behaves like other risky assets.

This does not mean that the value proposition of bitcoin has been broken;In short, it will behave differently in different types of recessions.In some recessionary scenarios, it would not be an effective hedge.

There are also scenarios where bitcoin, unlike stocks and cash, does well.However, liquidity crises during recessions are not one of them. They are the superstition of traders.

The idea that bitcoin is a haven from inflation limits its usefulness.There are other positive aspects to bitcoin, including its ability to become a global digital cash that can be sent anywhere in the world in minutes.Most of the illegal production of assets is a hedge against currency inflation in the developed world;It's time to stop supporting the existence of bitcoin to save us from the myth of recession.

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