All signs point to a recession, the likes of which the world has not seen since the Great Depression that occurred after the roaring twenties. Although the times have changed significantly, and the underlying factors that triggered the Great Depression are nothing like what the world is facing today. By now, unless you’ve been hiding under a rock, you’re aware that the stock market has fallen (at the time of writing) about 30% since the start of 2020. Bitcoin, on the other hand, has also fallen, about 30% since January 2020. It’s time to take a look at how the cryptocurrency markets are responding to the world economic crisis being caused by a near global shutdown of shops, services, and businesses of all sizes.
While the investors in the global markets may be panicking due to 30% losses from the start of 2020, this is a fairly regular occurrence in the cryptocurrency markets. What the world is calling a recession right now, is what cryptocurrency investors experience at least twice a year.
What is Bitcoin Doing?
Today I visited money.cnn.com, not because I usually check out CNN for my market news, but because I wanted to see how the world markets are fairing with respect to the crisis. Not well! After scrolling through the page, I noticed that they have a Bitcoin widget on their page tracking the price of Bitcoin today. While other companies, indexes, and industries are well into the red zones on one of the worst days on the market in recent history, the price of Bitcoin hovered today, not reflecting any of the market sentiment the rest of the world was experiencing.
While the rest of the world of finance is busy crashing, Bitcoin for one reason or another, has decided to remain stable for the more recent downturns. If you’re following Bitcoin, then you know that its reputation as a “safe haven” asset was crushed on March 12th, when it fell almost 40% in a single day. Up until that point in time, it did appear that Bitcoin, and cryptocurrency in general had resistance to the market forces plaguing the rest of the world.
The leading theory behind the March 12th crypto crash is that the institutional investors currently losing billions on the DOW Jones and other global markets sold their crypto holdings to cover their losses. The current theory for why Bitcoin is not still falling with other world markets, is that retail investors have every reason to believe that “hodling” (“Holding on for dear life”), is the right move for their money.
Trillions of Dollars of Stimulus
On March 17th, the White House announced a $1 trillion dollar stimulus package to aid in the economic recovery of the United States. This is after the United States slashed interest rates, and injected $1.5 trillion dollars of liquidity into the banking system. The main question on everyone’s mind is, where does this money come from? It might be really nice to have more cash on hand, but what happens in the long run if you inject this much cash into the economy?
The popular thing to do right now, is to compare the phenomenon of additional trillions of US dollars to how Bitcoin handles the economic crisis. To Bitcoin, everything is business as usual. No special meetings, no stimulus package, no emergency funds being injected into Bitcoin’s supply. In fact, the rate of new Bitcoin production is actually still set to slow by half in May 2020. So as the rate that more USD is created, the rate at which new Bitcoin comes into circulation is slowing. This has many economists, and cryptocurrency experts speculating on what effect this will have on the price of Bitcoin.
Is Now the Time to Buy?
Famed whistleblower Edward Snowden tweeted on March 12th, that the drop in crypto prices feels too panicky, and that for the first time in a while, he’s felt like buying Bitcoin. This sentiment seems to be shared by much of the crypto community. The markets have since stabilized at new values, and have not shown any significant correlations with the trend of the world stock markets. For many crypto investors, March 12th was a treat, and a gift, allowing them to pick up cheaper than usual Bitcoin. There are already well established truths about crypto assets fluctuating directly with what happens to Bitcoin. This is not true for every cryptocurrency, but it is certainly holding true most of the time.
There are two major factors that are driving the idea that now is a good time to buy, one of which is tied to COVID-19.
- The Bitcoin Halvening is approaching in May, decreasing the inflation rate, on an already low inflation asset
- The United States are injecting trillions of dollars into their economy, inflating their monetary supply and providing cash for citizens and businesses alike.
According to Contrarian Investing Strategies, the best time to buy is when there is blood in the streets. The logic makes sense, buy when the markets are low, sell when they are high. The problem is, how do you tell when the market is done bleeding? Some would say it doesn’t matter, and I tend to agree, if the stock you’re investing in has taken a nosedive out of fear, it is only a matter of time before the stock rises back to your investment and beyond.
A famous example of this is Boeing. If you invested in Boeing shortly after 911, you wouldn’t see the bottom of the market until September 2002. However, Boeing would later quadruple in value, proving that a crash in stock price doesn’t wipe out the value of the stock, it just brings down the price.
Buffett and Bitcoin
Although it may be taboo to quote Warren Buffet in a cryptocurrency news article, the phrase is all too relevant in today’s context, and a perfect way to end this article.
“Be fearful when others are greedy, and greedy when others are fearful”
Disclaimer: This article is for informational purposes only and does not express the opinion of CryptoVantage. It is not meant to be taken as advice to buy, sell or invest in cryptocurrency.