Jan 25th 2023

It’s been 10 years since the Great Recession and horror stories of another worldwide economic downturn are doing their rounds again. With cryptocurrency still considered a new asset class, you might be wondering how it will fare in this bearish environment. Assuming the economic doomsday predictions do come true and most of the world’s population are up the financial creek without a paddle, would cryptocurrency investors be putting their hands in the air and partying like they just don’t care?

A point to ponder – this would be the first crisis in the cryptocurrency era and, lest we forget, the existence of Bitcoin itself was triggered by the 2008 global financial crisis. While opinions are somewhat polarised on how cryptocurrencies will perform during a recession, based on recent trends and expert opinions, the following factors point to cryptocurrency serving as a hedge against a volatile economic climate.

1. Independence

Cryptocurrency, especially Bitcoin, isn’t centrally controlled and is relatively free from the pressures of the traditional financial system. Its overall value proposition could just be what people need to hedge against a recession.

2. Convenience

Obtaining Bitcoins are a lot easier compared to regular fiat currencies. You can buy them and sell them through its own exchanges which gives people some hope in the face of their own currency dipping during a crisis. In a nutshell, now anyone can crypto.

3. Safer Against Inflation

When inflation goes nuts, unstable fiat investments become less appealing for many investors, driving them towards cryptocurrency as a safer financial investment. There is a reason why Bitcoin is trading at about 40% in inflation hit countries like Venezuela and South Africa.

4. Real Value

With a number of countries dealing with underperforming currencies, cryptocurrencies, especially Bitcoin, could demonstrate the same intrinsic value as gold. Bitcoin is non-sovereign and cannot be manipulated by monetary policies, making it a promising substitute for cold, hard cash.

5. Mobility

Bitcoin has often been compared to gold and, in some quarters, even regarded as digital gold. Gold has traditionally been people’s safety net for centuries and will remain so during a recession. However, logistically, moving gold around is not a piece of cake. Moving cryptocurrencies or Bitcoins, though, require no more than a hardware or paper wallet, or any secure online wallet.

6. Ease of Mining

There are very few places in the world where gold can be mined but for Bitcoin, all that is required is an internet connection and relevant equipment, and mining can be conducted from anywhere at any time. It’s probably a lot cheaper too.

7. Currency Hedge

The US-China trade war escalated in the middle of the year, causing the value of the renminbi to nosedive. During this period, Bitcoin’s value skyrocketed to over 150%, which experts decipher as investors viewing Bitcoin as a safe-haven asset.

8. The Trust Factor

In many countries, people’s trust in banks and reliance on governments have gradually eroded. This was the catalyst for Bitcoin’s creation in the first place. Investments such as currencies and gold are controlled by centralized bodies. Cryptocurrencies, however, rely on blockchains, with ownership and use cases entirely in the hands of investors.

9. Demand & Supply

Economy 101 tells you that with high demand and limited supply comes premium pricing. The finite supply nature of Bitcoin and its halving has always driven its value. With more people and institutions entering the Bitcoin space, demand incessantly increases while supply remains limited, which could potentially drive its value even higher during a recession.

10. Media Attention

With experts predicting doom and gloom on the horizon, every man, his dog, cat, and fish are talking about Bitcoin being the potential lifesaver. This generates continuous media attention and could possibly influence more people to take the plunge into cryptocurrencies which helps drive up its value.