Can we rely on Bitcoin to be the recession-proof asset of the future?
Since President Trump announced tariffs on Chinese exports, the Dow Jones has been more volatile than ever. In the 24-hours after the proposal came to light back in mid-March, the Dow Jones was down over 720 points, amounting to nearly a 3% drop. Since then, China has hit back with tariffs against US exports and once again the stock market has seen a dip. All of this then begs the question, if and when the stock market crashes, what happens to Bitcoin and other cryptocurrency? And, importantly, can Bitcoin be the recession-proof asset of the future?
Historically, there has not been a clear correlation between the cryptocurrency price and stock markets. However this year that seems to have changed a little, which Wells Fargo noted back in February. Importantly, it’s been a bull market for the past 18 months, with confident investors (perhaps too confident) driving it up. However, we’re hitting a bear and at the moment we are seeing the same dip in cryptocurrency.
As Bitcoin becomes a ‘mainstream’ option for your average joe and investors alike, the risk really is that it will be too closely tied and suffer the same governmental, international trade issues that the rest of the world seems to face. This could see Bitcoin and other cryptocurrency follow the same trajectory as stock markets.
It’s not all doom and gloom, and in fact there are significantly more opportunities than there are risks, particularly in a bear market.
The narrative about Bitcoin being ‘the new gold’ has been around for a long time, but we may see this come to fruition as we see stock markets move the other way. In olde-worlde approaches, gold is a stable option, it retains its value and has limited supply; this is where investors move their money in a bear market. You might recognise the similarities then between Bitcoin and Gold, particularly vs fiat currency.
In a bull market, investors will always turn back to Gold and other ‘intrinsic value’, limited supply products that will retain their value and succour and stabilise the market. Bitcoin has deep intrinsic value for the same reasons as gold.
However, Bitcoin has something above and beyond gold: no physical location and therefore not tied to any one place or nation. The benefit here is the possibility of being able to move money and trade around restrictions in place by lots of different nations. Again, for investors, your average-joe and businessmen the world over, this could be particularly persuasive, powerful and valuable.
Intrinsic value is the key here. The stock market is much older and bigger than cryptocurrencies and it’s truly risky to consider any currency as ‘investment-proper’, in the way one might invest in pharmaceuticals. Bitcoin truly does have intrinsic value but it may take a while for Bitcoin to set its own path – one day we may see Bitcoin influencing the Dow Jones.
Is Bitcoin a recession proof asset? Not yet, but it could be.