Bitcoin (bitcoin) was a response to the 2008 global recession. It introduces a new way of transacting without relying on the trust of third parties such as banks, especially failing banks that governments bail out at the expense of the public.
“Central banks must be trusted not to devalue currencies, but the history of fiat currencies is full of violations of that trust,” Satoshi Nakamoto wrote in 2009.
Bitcoin’s genesis block summarizes the intent with the following embedded message:
The Times 03/Jan/2009 Chancellor on brink of second bailout of banks.
But while Bitcoin leaves mining blocks untouched and its gold-like properties appeal to investors seeking “digital gold,” it is currently down 75% from its November 2021 high of $69,000, suggesting that It is not immune to global economic forces.
Meanwhile, the entire cryptocurrency market lost $2.25 trillion over the same period, hinting at massive demand destruction in the industry.
Bitcoin’s collapse comes at a time of rising inflation and a hawkish response from central banks around the world.Notably, the Fed Raise the benchmark interest rate by 75 basis points (bps) June 15 to contain inflation that hit 8.4% in May.
Additionally, the crash brought BTC’s trend more in sync with the performance of the tech-heavy Nasdaq Composite. Between November 2021 and June 2022, the U.S. stock market index fell more than 30%.
More rate hikes to come
Federal Reserve Chairman Jerome Powell famous In his congressional testimony, their rate hikes will continue to bring down inflation, though adding that “the pace of these changes will continue to depend on incoming data and the changing economic outlook.”
statement later Reuters poll of economists Agreed that the Fed will raise the benchmark interest rate by another 75 basis points in July and will raise interest rates by 0.5% in September.
This adds more downside potential to an already sliding cryptocurrency market, famous London-based financial intelligence firm Informa Global Markets said it won’t bottom out until the Fed quells its “aggressive approach to monetary policy.”
But given the central bank’s 2% inflation target, a shift to hawkish policy appears unlikely in the near term. Interestingly, the gap between the Fed’s funds rate and the consumer price index (CPI) is now the widest on record.
Bitcoin faces its first potential recession
Nearly 70% of economists believe the U.S. economy will fall into recession next year due to the Fed’s hawkish stance. polls The Financial Times surveyed 49 respondents.
To recap, a nation slips into recession when its economy faces a negative gross domestic product (GDP) combined with rising unemployment, declining retail sales, and a prolonged decline in manufacturing output.
Notably, about 38% expect the recession to begin in the first half of 2023, while 30% expect the same to happen in the third to fourth quarters.In addition, a separate polls A Bloomberg study in May put the chance of a recession next year at 30 percent.
Powell also noted in a June 22 news conference that a recession is “certainly possible” due to “events that have occurred around the world over the past few months,” namely the Ukraine-Russia war that has led to a global food and oil crisis.
These predictions have the potential to put Bitcoin before a full-blown economic crisis.In fact, it doesn’t behave like safe haven asset During periods of rising inflation, it has increased the odds that it will continue to fall along with Wall Street indices (mostly tech stocks).
at the same time, Terra collapsesa $40 billion “algorithmic stablecoin” project that led to The bankruptcy of Three Arrows CapitalThe largest crypto hedge fund has also destroyed demand in the entire crypto industry.
For example, ether, the second-largest cryptocurrency after bitcoin, fell more than 80 percent to a low of $880 amid an ongoing bear market cycle.
“The crypto house is on fire, you know, everyone is rushing to the exit because people have completely lost faith in the space,” Say Edward Moya, senior market analyst at online forex broker OANDA.
BTC bear markets are nothing new
restock bearish forecast Leigh Drogen, general partner and CIO of digital asset quant hedge fund Starkiller Capital, expects Bitcoin price to fall below the $20,000 support level, expect The coin will hit $10,000, down 85% from its peak level.
However, there is little evidence that Bitcoin will die out, especially after the coin has experienced six bear markets in the past (based on its 20%+ correction), each of which has resulted in rebounded above previous record highs.
Nick, analyst at data resource Ecoinometrics, See Bitcoin is behaving like a stock market index, still in the “middle of the adoption curve.”
In a higher interest rate environment, Bitcoin could fall further — similar to the U.S. benchmark S&P 500’s multiple declines over the past 100 years before rebounding strongly.
“From 1929 to 2022, the S&P 500 has risen 200 times. That equates to a 6% annualized return […] Some of these asymmetric bets are obvious and fairly safe, like buy bitcoin now. “
Most altcoins will die
Unfortunately, the same cannot be said for all coins in the crypto market. Many of these so-called alternative cryptocurrencies or “altcoins” have fallen to the death this year. Especially for some coins with low market cap, the price dropped by more than 99%.
Still, after a potential global economic crisis, projects with healthy adoption and real users may come to the fore.
The best candidate so far is Ethereum, the leading smart contract platform that dominates the layer-one blockchain ecosystem More than $46 billion locked in its DeFi application.
Overall, a macro-led bear market is likely to damage all digital assets across the board in the coming months.
But Alexander Tkachenko, founder and CEO of digital gold trader VNX, told Cointelegraph that tokens with lower market caps, illiquidity, and higher volatility would face a higher risk of collapse. He added:
“If Bitcoin and other cryptocurrencies are to regain their full power, they need to be self-sufficient alternatives to fiat currencies, especially the U.S. dollar.”
The views and opinions expressed here are those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk and you should do your own research when making a decision.