- Cryptocurrency’s first “stress test” is yet to come, contrary to a report from JPMorgan last week
- A global recession is imminent, and we won’t know how Bitcoin will fare until it really hits
- If Bitcoin is still doing well in two years’ time, then we can say it has passed its first test
Cryptocurrency hasn’t passed its first “stress test”, despite JPMorgan claiming so in a report last week. The bank suggested that the asset class had weathered the coronavirus storm that rocked traditional markets earlier this year, after Bitcoin crashed to $3,850 in March. However, this crash was nothing to do with coronavirus, and with the first wave of the disease still causing havoc in countries such as the US, Brazil, and India, we can’t claim that cryptocurrency has performed well during an economic downturn because the recession hasn’t started…yet.
Cryptocurrency’s March Crash was Not a Stress Test
It is easy to link Bitcoin’s crash in March to the coronavirus, especially as traditional markets were feeling the effects and selling off at the time too, but the truth is that the 51% drop was caused by a combination of internal factors – manipulation, the PlusToken scammers selling their bitcoin, and leverage trading sites causing a selling cascade.
It is therefore untrue to say that cryptocurrencies have experienced their first stress test, because it hasn’t yet – but it is about to. The economies of many countries around the world are still frozen, and we have no way of knowing what state those economies will be in until they reopen. Millions of people around the world are surviving purely on emergency government support schemes because they’ve lost their jobs and can’t get new ones because so few places are open for business, and many are downsizing rather than recruiting.
So what happens when these coronavirus programs come to an end? What happens when millions of people can’t afford their mortgage or their rent anymore? We’ve seen what happens, we saw it in 2008. The world took a long time to recover, and in many ways it still hasn’t. You still think your shitcoin will be pumping when foreclosures are hitting consecutive weekly highs?
Check Back in Two Years
Stock markets have rallied massively in recent weeks based in large part to the US government printing trillions of dollars in order to prop them up, but this party will come to an end soon too. Only once the world begins to wake up and come out of lockdown will the true cost of the coronavirus to the economies of the world be known, and then we will be able to see how good cryptocurrency performs in its first stress test.
If the cryptocurrency market is still holding its own while people lose their jobs and their houses by the millions, then we will know it has passed. Likewise we can be confident should the hundreds of Bitcoin whales that have been ‘born’ in the past year are still holding their 1,000+ BTC in a year or two.
Until that time however, until we are taken out from the eye of the storm and placed squarely into the howling gale, which we will be soon, all we can say is that cryptocurrency has survived another 50% drop. And for crypto fans, that’s not a stress test.
