How Will A Recession Affect Bitcoin Price?
Opinions are divided on what to expect in the next few months as the first time a prolonged Bitcoin bear market meets with repeated assertions that the global economy is likely to go into recession. The Bitcoin market has never been around during the beginning of an economic recession. However, its following a natural downstream at the moment is causing a concern across the market especially as it’s still a speculative asset for many people.
The fear is that if and when a recession hits, money supply will contract. The contraction will lead to less money in the economy which could mean that more money cannot flow into a high-risk asset class like cryptocurrencies such as Bitcoin.
In a recent poll by a popular BitcoinTalk administrator, Theymos, more than half the respondents (57.7%) believe the price of Bitcoin will go up in a possible recession. About 26.9% think the price would go down while others say Bitcoin will be largely unaffected by a recession.
Theymos notes in a separate Reddit post that people who put money into Bitcoin merely to generate returns may be forced to move back to traditional investments during a recession. He suggests that this may be happening already and is partly the cause of the current downturn.
He adds: “Though because a large percentage of Bitcoin users are unwilling or unable to do that, I think that it will only be a moderate downward pressure, which might be overcome depending on the circumstances. For example, if the recession coincides with the usual post-halvening BTC boom, then maybe the two factors will largely cancel each other out. Also, if the recession gets so bad that people start to lose faith in the fiat economy entirely rather than just treating it as an annoying temporary thing, then that’d probably be very good for BTC.”
While some enthusiasts may share Theymos’ view, the opinion divide among others covers various outlooks. With the ongoing trade war between China and the US in particular, some of the poll’s respondents agree that the global economy is slowing down as evident in the current bearish state of the stock market. They think it would lead to a correction and a mild recession padded by more quantitative easing but not something too damaging to the economy as being suggested.
Another view shared is that an economic crash would happen and will bring Bitcoin down with it since its ecosystem is not mature enough to handle huge transaction traffics. More so, such assets are bound to suffer first in such a market downturn situation. Since it is developing, holding Bitcoin on the long-term is considered a better option though it is still expected to dip a little more in coming days.
There is also a distinct and quite remarkable line of thought. It rests on the assumption that a larger section of millennials would prefer buying Bitcoin instead of traditional physical assets like gold in the coming years. This factor could be dicey as it holds the ace when it comes to telling which way the Bitcoin market would go in a global recession. Millennials may not place as much stock in gold and silver as older generations do and they have been known to have shown interest in using cryptocurrencies. However, the extent to which their interest would translate into investment in crypto assets is still indeterminate.