What to expect from cryptocurrencies in a recession


Whenever President Joe Biden starts talking about a possible recession, the newspapers and the public start to feel ashamed. In recent weeks, we have been expecting discussion of whether the US is actually in a recession, but one thing clear: we are staggering.

To get an idea of ​​the economy, a lot of attention is usually paid to gross domestic product (GDP) as a key indicator. If GDP falls by two consecutive quarters, if we start talking about a recession.

Although a recession depends on a number of factors such as unemployment, industrial production, retail sales and income, many people continue to profile a prolonged recession because macroeconomic factors such as inflation and supply chain problems are not initially resolved. quickly.

With two consecutive quarterly drops in GDP at the beginning of 2022, by some standards, a recession began. A differential from the last major review, however, is a new asset class in the financial landscape that deserves to be evaluated.

What about cryptocurrencies?

Cryptocurrencies have existed, for the most part, at a time when the United States has never been so close to a prolonged rezession. After the Great Recession, the only time GDP entered recession territory in 2020 was when the COVID-19 pandemic began and economies around the world were shut down.

BTC adds a baby

The cryptocurrency market does not exist because there is enough time to get an idea of ​​what to drink in the event of a significant recession. The first cryptocurrency invented was Bitcoin (quote BTC) in 2009, then it changed a lot. However, there have been some periods of poor economic performance over the past 13 years that we can analyze to get an idea of ​​what the future of cryptocurrency holds in the event of a severe recession.

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One of the rare periods of economic instability in 2009 was confirmed in 2015. After 2014, GDP grew, albeit at a slower pace each quarter, reaching a growth rate of 0.1% in the fourth quarter of 2015.

In 2015, the S&P 500 experienced a negative first year of the Great Recession. During this time the crypto asset class was completely bombed. The collective market capitalization of all cryptocurrencies dropped nearly 70% in 2014 before reaching at least 2015.

Another recent bout of economic instability occurred in 2018. Similar to 2015, national GDP grew, at a slower pace each quarter, and overall slowed to a growth rate of 1.3%. In 2018, the S&P 500 had its worst year since the Great Recession, losing 6% of its value.

Investors in Gli and cryptocurrencies in circulation in 2018 are likely aware of the problems they are already facing. After peaking at around $ 750 million, the market capitalization of collated cryptocurrencies eventually dropped to just $ 107 million, a catastrophic drop of 85%. The Bitcoin Passed for around $ 19,000 for a little over $ 3,000.

Opportunity and Ambush

It is clear that there is no period of slowdown in the economic crisis, the cryptocurrency is not spared. Indeed, they are often the most affected. When, in the event of a recession, the cryptocurrency will not be reduced to a quarter of the value. But periodically there is a positive side.

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Invest in the lower part of these cycles, in 2015 and 2018, but be produced in monumental yields. Since Bitcoin represents a large share of the crypto market, we will use it as a proxy to measure opportunities that may be starting in 2022.

If you invested $ 1.00 in Bitcoin which hit a low in mid-2015, that $ 1,000 was worth more than $ 80,000 in 2017. It was recently hit an all-time high in 2021.

As long as fears of a recession persist, cryptocurrencies will likely struggle to make significant gains. Investors willing to take advantage of these depressed prices to lower their cost base could position themselves for similar gains in periods such as the 2017 and 2021 bull run.

No one can tell exactly when economic sentiment will change, so you shouldn’t try to time the market. But when macroeconomic conditions improve, we can expect cryptocurrencies to recover just as the economy has done in the past.

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