The financial situation in the US is nothing short of being a mess with the Federal Bank’s decision on quantitative easing that caused President Donald J Trump to voice his concerns over the decision of the Feds.
The results of this move are enticing the already approaching recession to come faster. To make matters worse, the Feds have increased the interest rates and also teased the increase in rates two times in 2019.
Major players around the world, reaching up to the highest level of power, have heard about digital currencies that have materialized out of thin air and are trying to go head-to-head against the currencies of the world.
Bitcoin has created a revolution of a sort ever since Satoshi Nakamoto solved the double-spending problem and created a digital currency that doesn’t rely on the government authority through its underlying technology Blockchain. It has taken the world by storm.
What would be Bitcoin’s fate in this collapsing financial landscape? One of two things could happen is that the highly speculative and ultra-volatile digital asset, Bitcoin, could crumble along with the global markets in the event of a recession. The second being that countries and anarchists who believe in economic freedom could adopt Bitcoin or other digital currencies, leaving the fiat in its grave.
Bitcoin: The underdog could swoop in to save the world
Unlike the fiat currencies, Bitcoin’s supply can never be increased to more than 21 million, thus it won’t suffer inflation at the hands of centralized governments like Argentina’s Peso or in Venezuela where Bolivar lost almost 100% of its value.
Most of the times, in countries like Argentina or in Venezuela, when there is inflation, people lose faith in fiat currencies and hence turn towards alternatives like precious and tangible assets which are a good store of value like gold or silver. People could even turn to Bitcoin or other cryptocurrencies which are being called a store of value or a digital gold to bet against and outperform the market.
With the current financial system, there are a lot of middle-men who increase the friction when it comes to transacting money which leads to higher transaction fees and time consumption. Digital currencies eliminate all these problems which are a part and parcel of the fiat currencies and centralization. People might like the idea of fleeing a sinking currency in favor of a digital one with no central control such as Bitcoin.
Since the digital assets like Bitcoin have piqued interest among the financial watchdogs and other authorities, a few, if not all, have come to understand the advantages these assets bring to the table. Hence, institutional players like the Nasdaq or ICE’s Bakkt or Goldman Sachs are trying to adopt these assets.
Mike Novogratz, an investor, and a Bitcoin enthusiast expressed how he thinks Bitcoin could be the next store of value. He also said how Bitcoin is still the best performing asset when compared to traditional stocks even though it has collapsed by more than 85%.
“If you bought Bitcoin two years ago vs the S&P or any other asset, you’re still up more, if you bought Bitcoin two years ago vs gold, you’re still up more, if you bought Bitcoin a year ago, quite frankly, you’re up more.
So, you’ve got to sometime step back from the immediate and look at the slope we’re going on, it’s actually close to a miracle that some guy created a program and 10 years later still has $80 billion of value as a digital store of value, that got David Swenson from Yale to invest in it, that got Abby Johnson from Fidelity to say “we’re gonna build business over in crypto”.
As long as money [fiat-currency] is being controlled by centralized authorities, it is susceptible to mismanagement, and hence no country could ever be impervious to the threat of rampant inflation.
Fiat currency: The centralized currency system that continued to survive
People are still unsure about digital currencies and might still be stuck with the idea of fleeing a sinking currency in favor of a digital one with no central control.
The unfortunate scenario that could happen is that Bitcoin, which is an uncorrelated asset, could tank along with other fiat currency’s sell-off recession and the cycle continues.
There are a lot of people out there who think that these digital and speculative assets would be the first one that would sink and go into bear markets when the sell-off hits the streets.
In efforts to prevent the recession in the US, Feds are increasing the interest rates, which would mean that the USD would deflate and recover from inflation, hence having more power, and come back stronger as compared to other currencies, including Bitcoin.
With the recession, people would seek recluse and safety with tangible assets, which have been around for more than half a century. Assets like gold or silver instead of digital currencies, which have only been around for a decade, could be people’s obvious choice. Moreover, gold and silver are a better store of value as compared to cryptocurrencies which suffer from hyper-volatility.
Even though crypto-assets are uncorrelated assets, there are speculations that during the recent sell-off, investors panicked and emptied their crypto-holdings to cover stock marginal calls.
Furthermore, Bitcoin being a store of value is a belief that does not hold outside the cryptocurrency ecosystem. In addition, people are still unsure to get into Bitcoin or any other cryptocurrency as they haven’t yet been through a recession and they argue that it will not act any different than other speculative assets.
Bitcoin or other digital assets could become the savior that the people have been hoping for all these years, which could essentially erode centralization and usher in a new era of decentralization that could go down in the history, and even in the books, for future generations to come or it could crash along with the recession and get rejected as a speculative and highly volatile asset and all the efforts by cypherpunks, anarchists and libertarians could go down the drain.
Whether cryptocurrencies will be accepted or not is something that only time can tell, but one thing that we could all agree is that a recession is definitely underway.
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