We can start our article today by asking this pivotal question:
Will Bitcoin Survive the Next Recession?
*At a time of global geopolitical tensions and financial instability, and with the world increasingly reliant on digital currencies, there are growing questions about whether Bitcoin will survive the next recession.
*While there is uncertainty due to the lack of testing of digital assets during major bank failures and recessions, Bitcoin currently has all the characteristics to be a store of value during recessions and financial crises. Just like gold, during recessions and bank failures, Bitcoin may tend to perform well due to its scarcity, uniqueness, and relative lack of correlation to traditional financial markets. Of course, the magnitude of the financial (and social) crisis must also be taken into account, as the outcome may vary based on that.
*The idea of ââBitcoin arose in 2009, after the global financial crisis of 2008, which clearly highlighted some of the problems and gaps in the banking system. Bitcoin is the exact opposite of a currency issued by central banks: Bitcoin is limited in quantity (21,000,000), has no central authority to govern it, and has all the properties that make it an ideal store of value (permanent, transferable, interchangeable, divisible, scarce, censorship-resistant)
The origin of the current financial system is relatively recent, dating back to 1971 when the United States finally abandoned the gold standard. Since that time, money has no longer been tied to a fixed amount of gold, and the system has focused on paper currencies issued by financial institutions and governments that are not backed by a commodity.
So, the fundamental problem with fiat currency issued by central banks is that its value is determined by the authority of the financial institution that issues it, and therefore, there is no intrinsic value to money. In fact, if you decided to start your own bank and your own currency tomorrow, it would be no different from the dollar or the euro or any other currency, but it would be worthless because your financial institution is not recognized and has no authority. This easily explains why the hypothesis of bank failure is not so far-fetched when you consider all the problems that the traditional financial system entails and the emergence of revolutionary solutions such as blockchain and cryptocurrencies, especially Bitcoin.
When looking at Bitcoin as a haven asset, we need to understand how it can further impact the global economy:
1- Shifts in the financial system: If Bitcoin becomes more popular as a safe haven, we may see a shift in how people interact with the traditional financial system. These shifts may lead to changes in central bank policies and tools, as well as impacts on the value of traditional currencies.
2- Diversification of assets: Bitcoin may contribute to enhancing the diversity of investorsâ asset portfolios. Individuals and companies may resort to Bitcoin as a hedge against the volatility of traditional markets and financial crises, which may increase the stability of some assets during turbulent periods.
3- Technology and Innovation: The emergence of Bitcoin also fosters innovation in the financial sector. The blockchain technology behind Bitcoin could lead to improvements in the way transactions are processed, increase transparency, and reduce costs. This technology may continue to influence how transactions are executed and improve security in the future.
Bitcoin's future prospects
As global economic crises and changes in financial policies continue to develop, Bitcoin may play an important role in the financial system:
1- Institutional investment: The growing interest of large institutions in Bitcoin may indicate a wider recognition of its value as a store of value. Institutional investment can add stability and strength to Bitcoin and help establish its position as a reliable asset.
2- Global adoption: If Bitcoin is adopted by countries and major companies, its role as an international financial instrument may be enhanced. Widespread adoption may contribute to the stability of Bitcoin and increase its influence in global markets.
3- Crisis Response: Bitcoinâs performance during upcoming financial crises will provide important insights into its effectiveness as a safe haven. If it continues to stabilize during times of instability, it may become more acceptable as a hedging and diversification tool in an asset portfolio.
4 Surprising Reasons Why This Cryptocurrency Is A Great Way To Ride Out An Economic Recessionđ
We donât know when or how the next recession will come. But we do know that there are different ways to prepare for it today than ever before. The traditional way to deal with a downturn is through cash and high-yielding stocks with strong financials. That remains a good option, but investing in Bitcoin (BTC 0.69%) is also an excellent option to weather a recession. Hereâs why Bitcoin, the best asset of the past decade, is one of the best ways to fight a recession.
1-It was built specifically for that.
Bitcoin was founded during the Great Recession in the United States. In response to the failure of the traditional financial system, Bitcoinâs anonymous founders sought to create a currency that people could trust and that operated without interference from third parties. They succeeded in creating a store of value that was non-fungible and independent of any sovereign state.
2- Its innate diversity
The US dollar in China is the same as the US dollar in France. But it is still the official currency of the United States, which means it comes with all the advantages and disadvantages of the American economy. Moreover, it can be difficult to obtain, store, and use in many countries.
Bitcoin has an inherent diversity because it is not tied to just one economy. It represents wealth without borders.
As we saw in 2008, countries can be affected by recessions if they have common economic interests. While the United States, the European Union, Japan, and many other developed countries experienced economic declines in 2008, many of the worldâs developing countries actually expanded from 2007 to 2009.
3- Its security and global transferability as a store of wealth.
Bitcoinâs value comes from its scarcity, security, and transferability. Like gold, Bitcoin has typical commodity properties in that it has value regardless of how the economy is performing. Unlike stocks, its appreciation is not directly tied to the merits of a strong sector, innovation, or financial discipline. Rather, it has value in both economic expansions and contractions.
4- Total supply is limited, and the added supply is decreasing.
Bitcoin has a reputation for being a system that has stood the test of time. Since its inception in 2008, the Bitcoin protocol has regularly regulated the supply by ensuring that the rate of Bitcoin mining is constant, and the supply added to each block mined decreases over time.
Compared to the characteristics of other fiat currencies and cryptocurrencies, Bitcoin is clearly designed to be an asset worth owning during a recession. However, there is a good chance that Ethereum will outperform Bitcoin in the long run, as well as several altcoins with greater potential.
For people starting out in crypto, Bitcoin remains a good option to get into the game with less risk.
Reference links:
https://www.binance.com/en/markets/spot_margin-USDT
