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Higher or Lower? Bitcoin’s Value in a Financial Crisis Scenario

The IMF does not frequently predict a global financial crisis accurately but its warning should not be overlooked. So does JP Morgan’s and some experts’ too. They may not be able to say precisely when it would happen but they have been hinting on the need to make precautionary preparations. Several crypto enthusiasts may choose to go for Bitcoin to see them through the crisis period. What could likely be the value of Bitcoin if another global financial crisis happens?

 The floor of the New York stock exchange in September 2008. Photograph: Richard Drew/AP

The floor of the New York stock exchange in September 2008. Photograph: Richard Drew/AP

Nobody knows. It’s true that Bitcoin was made public in 2009 in the aftermath of the financial crisis as a likely remedy to forestall its impact in the event it happens again. However, its usefulness in that regard has not been proven except on paper. With the complexities of crypto economics and the slow adoption rate, no one could say for sure what would happen to Bitcoin’s price when the time comes except than make educated guesses that it could go either way.

Bitcoin price may surge higher when the market recovers especially being a favorite for many millennials who are now getting to know more about the cryptocurrency. Older folks may still opt for gold as the safest asset considering they have tested it and they have the most capital.

Going by the view that whenever the stock market or most top economies go south and some investors are forced to sell their positions to pay debts, Bitcoin’s value may rise if it follows gold’s pattern in such a scenario. Gold tends to sell off initially during a financial crisis but spikes later as people seek safety.

For example, the uncertainty that trailed the Brexit referendum and the election of Donald Trump as US President boosted interest in Bitcoin thus increasing its value for the periods in question. Depending on how uncertain the situation gets and for how long, Bitcoin’s price in a financial crisis scenario may rise pretty quickly.

According to a Fundstrat’s crypto-Twitter survey, about 60% of respondents believe that the price of crypto will rise in the event of a recession – with institutions showing more confidence in the rise of their prices. The finding comes from one survey conducted during a dinner with 25 institutions (10 questions) and another 6-question crypto-Twitter survey which had ~9,500 responses.

Any situation that leads to capital flight, asset price fluctuation and currency devaluation e.g. the ongoing trade war between China and the US which continues to escalate with no end in sight, could see interest in Bitcoin rise as a hedge. The World Economic Forum notes that depending on the economic conditions and preparedness, many countries like China may not be able to offer huge stimulus like in 2009 in another financial crisis situation.

On the other hand, Bitcoin’s price may go down like all other assets since cash will still dominate in a financial crisis situation. It is not clear the extent at which such a crisis will affect most major countries like the US, China or Germany – though they may have many countries with economic downturn depending on them.

The general sentiment towards Bitcoin by the time of a crisis will also matter. If people see it as the hardest money that ever existed, they will embrace it. If not, it would be overlooked and its value would be the same or less.

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