With Global Markets Facing A Meltdown, Is Bitcoin A Safe Harbor?
The global economy is facing uncertain times.
That’s not as horribly alarming as it seems, since the economy is known to follow patterns leading to a recession roughly every ten years, then recovering afterwards. It’s been happening for decades, and it’s expected it will happen again relatively soon.
However, as markets start coming down and surplus turns into consumption, wise businessmen start hedging their bets and doing everything possible to safeguard both their holdings and their savings. This implies either looking for markets that aren’t expected to be hit or hedging one’s bets in alternate places.
Going for bitcoin is the latter: Bitcoin, while a market in and of itself, is not related to any of the traditional markets in our economy. As such, some investors have been moving their holdings from stocks to crypto savings, hoping that way they’ll be spared any loses in the upcoming recession. But can this really work?
Bitcoin rises have been tied to market losses
Here’s the main reason some investors are going for BTC. The US/China trade war is threatening with getting stronger – something that has happened several times over the last couple years. The interesting detail here?
Bitcoin prices have historically risen as the looming threat of a trade war gets bigger. More interestingly, recent market movements show that Bitcoin tends to appreciate as US stocks deprecate.
This is in a way expected. The market shifts can easily be explained with people foreseeing economy changes to come and reacting accordingly. If somebody expects their current investments might go down next week, it’s only natural they’ll try to sell and put their money somewhere else.
However, the explanation, while useful, still doesn’t change facts. The market is flocking towards crypto when stock markets become unstable, so many investors are now trying to keep their money safe by keeping a healthy amount of BTC in their portfolio.
Does this mean that a recession can be completely avoided just by switching to Bitcoin, however? It doesn’t.
The early bird gets the worm
Although it’s easy to believe just moving your holdings to BTC will save you, that’s not entirely right. In truth, the upcoming recession will still leave its mark on the economy and a recovery period will be required.
BTC is just a way some investors are looking at to minimize its impact on their own lives, but it won’t save the market. It won’t even save all investors.
As stated before, the price of Bitcoin rises as markets plunge because of investors moving their holdings there. However, once investors stop moving their holdings – or worse, as they start moving them back – prices will do the opposite, with BTC going down and markets going up.
This means one thing: Investors who move their holdings to Bitcoin before the recession starts, and who move them back to traditional markets right as recovery begins will turn a profit. They’ll get to buy low and sell high.
Everyone else, however, will at best come out just as they went in. Many will even end up worse. The later anyone jumps into the Bitcoin bandwagon to safeguard their investments, or what’s left of them, the higher the risks for that person will be.
The later anyone jumps out of the BTC market and back into traditional markets, the lower their selling price for BTC will be, which will translate into a much smaller capital.
In other words, there’s no stopping the incoming recession. Investing into Bitcoin is just a way to try and curb its effects on your personal portfolio.
So is it a safe harbor?
It is and it isn’t. And the facts lean towards Bitcoin not being much of a safe harbor.
Bitcoin will work for many investors because they’ll be leading the charge both in and out – but these investors will be the only ones to profit from such a move. Even then, anyone who moves their portfolio towards crypto because of a recession will have to watch the market closely and jump out right before economic recovery begins.
Which means the maneuvering space might be really small. Stock markets move fast, and crypto markets even faster. We’ll see Bitcoin price gradually rise as the global economy plunges, but once BTC prices start going down it’s likely to do it big. We’re talking losing huge chunks of its value in a matter of hours.
The crypto market is, after all, incredibly easy to manipulate by but-time players just like the stock market. The moment the first two or three big players cash out and the market gets flooded with BTC offerings, prices will crash. And just as it has happened before, it will happen again.
That’s not to say you should avoid Bitcoin investments. It only means you would do well to read the market properly and remain one step ahead. Bitcoin investments will save many people’s holdings, but they will also be the downfall of many more.