DeutschCryptocurrencies are also subject to market fluctuations. Although digital coins are extremely promising when it comes to security, investors are less willing to invest as soon as the economy shrinks. How is Bitcoin likely to fare in a possible recession? An analysis.
Bear and Bull
Cryptocurrencies are just one of many financial products that have become more accessible to traders in recent years thanks to the Internet: Today, investors can not only buy shares with just a few clicks, but also (thanks to short trading) easily bet on falling markets via the Internet. This means that profits can also be made during a recession – an important instrument in economically difficult times. Options are also suitable in a “bear market”, i.e. a falling market: Options are financial products with which traders can trade the forecast future value of a market. When an investor trades an option, they pay a premium, but can then trade it at a fixed price up to a fixed expiry date of the option. Investors pay the premium because there is no obligation to trade options – so if, for example, the price of gold does not rise to the expected value, the purchase can be waived. Trading has repeatedly proven true: While the bull slowly climbs the stairs, the bear jumps out of the window. This means that while a rising market (“bull market”) grows slowly and over a longer period of time, prices fall very suddenly in the falling “bear market”. Keeping an eye on the potential downturn can therefore be worthwhile for investors.
Bitcoin in Focus
Cryptocurrencies such as Bitcoin are generally considered to be a crisis-proof investment that can withstand market fluctuations well. During the stock market turbulence at the beginning of 2020, for example, the Bitcoin price initially only fell by five percent, which is significantly less than, for example, the S&P 500 (minus 14 percent) or the DAX. Thanks to the Bitcoin halving in May 2020, in which the number of coins that can be calculated through mining was halved, Bitcoin should also be more robust to fluctuations in the future. Since then, half of the new bitcoins on the market have fallen sharply, which prevents inflation in the long term and at the same time increases the demand for the currency. The Bitcoin price therefore also rose to over 9,000 US dollars. Although the price of BTC coins fluctuates greatly overall – for example, the price for one coin has fluctuated between 7,000 and 10,000 US dollars in recent months. However, this is more due to the unregulated nature of cryptocurrencies, which is also the greatest strength of digital coins, and less to general market fluctuations. Bitcoin is therefore proving to be robust in times of crisis, but can by no means be described as a 100 percent safe investment and therefore remains a product for more risk-averse investors. The coming years will have to show how Bitcoin will really fare in a recession.
- Bitcoin
(BTC) - Price $117,435.00
- Market Cap
$2.34 T
Bitcoin in the Recession: Conclusion
Recessions are part of the economic cycle. That’s why all investors should be prepared for them. Bitcoin is considered to be relatively crisis-proof for a reason: after all, cryptocurrencies are not controlled by the state and, according to many traders, are one of the means of payment of the future. However, it remains to be seen how safely the prices will develop in a market that is falling in the long term. It is therefore worth looking for alternatives and always having a financial plan ready for a falling market.
