Bitcoin is, by all indicators, set for a bumper 2020 – Bakkt, the 2020 halving, the macro market cycle, and a potential EFT might all come together to give investors a memorable ride. But there is one looming crisis that could spoil the party quite significantly – a global recession. Talk of another financial crash has been gathering pace for some months now, and it seems that every passing week brings another voice to the table warning of an imminent crisis, with 2020 being the year that things are tipped to go south. What are the odds that this will curtail the hopes of Bitcoin hodlers dreaming of $100,000 next year?
The Financial Thunder Clouds are Gathering
As the numerous reports this year have highlighted, a perfect storm of conditions is brewing that could soon push the world’s economy over the edge, this time potentially taking some fiat currencies with it. Economies are creaking, stock markets and commodities are down, GDP is turning negative in top tier countries, and now the US treasury bond yield curve is inverting. This indicator in particular has preceded every recession in the past 60 years and has been the reason why recession chatter has massively increased this week alone. Throw in Donald Trump’s trade wars with China and public arguments with the Federal Reserve over interest rate cuts and it’s easy to see why bad times could be round the corner. And we haven’t even mentioned Brexit. The question is, when will the wheels fall of and how will Bitcoin fare when they do?
A Currency Crisis?
When the long-term charts all start pointing to a single event risk, I pay attention.
When those charts are at the KEY level, I focus.
And when they break, it is time for action…
Something really BIG is going on…
— Raoul Pal (@RaoulGMI) August 7, 2019
Speed of the Crash is Key
Much of how Bitcoin would react to a global economic downturn will depend on how severe and rapid it is. Gold, which is seen by most as the ultimate hedge, slumped 25% during the 2007-09 financial crash which gives an idea of how even the safest of hedges can be affected. Had Bitcoin been around back then it would have been similarly affected, if not more violently. However, the reason why gold suffered so much in the last downturn was because so few people were prepared to even countenance the idea that a recession was imminent at the time. This time round however the headlines are coming out months in advance, and the fact that gold, silver, and Bitcoin are the biggest gaining assets of 2019 suggests that plans are already being put in place. This gives rise to the suggestion that a slow-burn recession as opposed to a flash crash might actually favor assets such as Bitcoin, which has already been used as a hedge to traditional markets and currencies in places like Cyprus, Venezuela, and most recently China.
This situation would give Bitcoin the best chance to prove itself as an adequate store of value. A more severe and sharp crash, which could be precipitated by a collapse of the trouble Deutsche Bank, could have a Lehman Brothers effect and trigger a huge sell off of multiple assets globally, to which Bitcoin would in no way be immune.
• Deutsche Bank hits a new 52-week low
• The yield curve just inverted, first since 2006
• 15 trillion in negative yielding bonds
• Trade war/Brexit/Hong Kong protests
• USD squeezing foreign currencies to collapse
• Central banks running out of tools
Yeah, I’m concerned.
— Nicholas Merten (@Nicholas_Merten) August 15, 2019
A Question of Timing
If we assume that a recession is inevitable, the timing of it will be critical for Bitcoin holders. Looking to the 2020 halving as a fundamental catalyst to aim towards, history suggests we should expect a price top out around six weeks prior to the halving around May 24, putting us at a peak in mid-April, about nine months away. If we go with the slow grind theory, then nine months gives the economy plenty of time to drip further downwards and for negative patterns to be confirmed. Given that many of the indicators have been on downward curves for years, it is likely that the next 6-9 months will be a time for observation and small-scale attempts at reversal (such as interest rate cutting) rather than huge last chance saloon efforts.
However, a seismic event such as a Deutsche Bank collapse, a sudden trade war escalation, or a multiple currency collapse could bring the whole house of cards down, taking BTC with it. And how soon could this happen? If you have a calendar and a dart board you’re all set. Still, despite the potential negative impact across the world, at least some are seeing the positives…
Deutsche bank’s fatal collapse will create a domino effect for faster xrp adoption
Banks have no time to think now and no way to go but @bgarlinghouse
All fat man’s desperate moves shall go in vain – good game @realDonaldTrump
— ripple_crippler (@Amanbainz88) July 1, 2019