Bitcoin was born out of the ashes of the 2008 financial crisis, and, ten years on, stark warnings are being issued on the state of the global economy. Global debt is currently three times that of 2007 levels, interest rates are being unsustainably raised, and housing markets in various countries have stalled.
We are, in the minds of many economists, on the verge of another financial catastrophe. Cryptocurrencies have weathered many a FUD-storm, but nothing on the scale of a global recession, so what can we expect when the inevitable happens again?
Recessions kill risk, so it’s important to realize that in times of economic uncertainty investors tend to run to established safe havens like gold and silver, commodities that have been used for thousands of years and retain a sense of intrinsic value. What investors don’t do is throw their money at young, super volatile asset classes, so there is little hope that cryptocurrencies would be seen as an attractive alternative, quite the opposite in fact.
Many that don’t have established use cases would drown and possibly go under in the sea of red that would follow, regardless of their perceived valuation at the time. A global recession is no respecter of what’s on the surface – only those with real value under the hood will survive. This could well be the moment that some billion-dollar valued projects meet their maker.
The ‘Real’ Birth of Cryptocurrencies?
From the carnage however, could emerge a very positive future on two fronts. Firstly, projects that are actually being utilized on a daily basis and have a reason for existence will rise from the ashes (e.g. Amazon and Apple after the dot com boom). Secondly, in the event of even a partial FIAT failure, as is entirely possible during a global recession, cryptocurrencies would be in a prime position to pick up the mantle of a worldwide currency.
The amount of time it would take for governments of the affected nations to implement a replacement system could be catastrophic for millions of people, yet cryptocurrencies would be ready and waiting to be deployed immediately. We have seen examples of this in countries such as Venezuela and Argentina, where hyperinflation has rendered the traditional currency worthless, and cryptocurrency is seen as a less volatile alternative for everyday transactions. Could this pattern be repeated worldwide if FIAT crumbles?
Still Bitcoin From the Block(chain)
Bitcoin, of all the cryptocurrencies, has the best chance of proving this theory wrong. It has shown itself to be incredibly resilient throughout its ten years, having been beaten up and come back fighting hundreds of times, so there’s a possibility it would ride the rocky waves of a financial catastrophe better than some traditional currencies. It will be interesting to see how cryptocurrencies fare and if their public perception changes when the next financial crisis inevitably hits.