Can Bitcoin survive its first global economic crisis?

Can Bitcoin survive its first global economic crisis?

Bitcoin (BTC) was the response to the global recession of 2008. 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.

Satoshi Nakamoto wrote in 2009: “Central banks must be trusted not to devalue currencies, but the history of fiat currencies is full of violations of that trust.”

Bitcoin’s genesis block summarizes the intent with the following embedded message:

“The Times 3 January 2009 Chancellor on the verge of a 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 raised its benchmark interest rate by 75 basis points (bps) on June 15 to rein in inflation, which reached 8.4% in May.

BTC/USD daily price chart. Source: TradingView

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 noted in congressional testimony that their rate hikes will continue to bring down inflation, but added that “the pace of these changes will continue to depend on incoming data and the changing economic outlook.”

The statement followed a Reuters poll of economists that agreed the Fed would raise its benchmark interest rate by another 75 basis points in July and 0.5% in September.

London-based financial intelligence firm Informa Global Markets noted that this adds more downside potential to an already slumping crypto market, saying it won’t bottom out until the Federal Reserve quells its “aggressive approach to monetary policy.”

But given the central bank’s 2% inflation target, it seems unlikely that hawkish policy will turn around anytime soon. Interestingly, the gap between the Fed’s funds rate and the consumer price index (CPI) is now the widest on record.

Federal funds rate and inflation.Source: Econometrics

Bitcoin faces its first potential recession

In a Financial Times survey of 49 respondents, nearly 70 percent of economists believe the U.S. economy will fall into recession next year due to a hawkish Federal Reserve.

To recap, a country enters a 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 between the third and fourth quarters. Also, a separate Bloomberg survey in May put a 30% chance of a recession next year.

The next recession in the US will begin in 2023.Source: Financial Times

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. And the fact that it doesn’t behave like a safe-haven asset during periods of rising inflation raises the odds that it will continue to fall alongside Wall Street indices, mostly tech.

At the same time, the collapse of Terra (LUNA, since renamed LUNC), a $40 billion “algorithmic stablecoin” project, led to the bankruptcy of Three Arrows Capital, the largest crypto hedge fund, and destroyed demand in the entire crypto industry.

For example, ether (ETH), the second-largest cryptocurrency after Bitcoin, fell more than 80 percent to a low of $880 during an ongoing bear market cycle.

Likewise, other top digital assets, including Cardano (ADA), Solana (SOL), and Avalanche (AVAX), are down 85% to more than 90% from their 2021 peaks.

Edward Moya, senior market analyst at online forex broker OANDA, said: “Crypto companies are on fire and everyone is rushing to get out because people have completely lost faith in the space.”

BTC bear markets are nothing new

The upcoming bearish forecast for Bitcoin sees the price falling below the $20,000 support level, and Leigh Drogen, general partner and CIO of digital asset quantitative hedge fund Starkiller Capital, expects the coin to hit $10,000, an 85% drop from its peak. %grade.

However, there is little evidence that Bitcoin will die outright, especially after the coin has battled six bear markets in the past (based on its more than 20% correction), each of which has resulted in a rally above its previous record high.

BravenewCoin Liquidity Index for Bitcoin bear market since 2011. Source: TradingView

According to Nick, an analyst at data resource Ecoinometrics, Bitcoin is behaving like a stock market index and is still “in the middle of the adoption curve.”

In a higher interest rate environment, Bitcoin could fall further — similar to what the U.S. benchmark S&P 500 has seen multiple times over the past 100 years — only to rally strongly.


“From 1929 to 2022, the S&P 500 rose 200 times. That equates to a 6% annualized return […]. Some of these asymmetric bets are obvious and fairly safe, like buy bitcoin now. “

The S&P 500’s decline in its history.Source: Econometrics

Most altcoins will die

Unfortunately, the same cannot be said for all coins in the crypto market. This year, many so-called alternative cryptocurrencies or “altcoins” have fallen to the death, especially some low-cap coins, with prices down more than 99%.

Altcoins rising in 2022 face losses of nearly 100%. Source: Messari

Still, after a potential global economic crisis, projects with healthy adoption and real users may come to the fore.

The top candidate so far is Ethereum, the leading smart contract platform that dominates the layer-one blockchain ecosystem with over $46 billion locked in its DeFi applications.

Ethereum leads the smart contract space. Source: DeFi Llama

Other chains, including Binance Smart Chain (BSC), Solana, Cardano, and Avalanche, can also attract users as alternatives, securing demand for their underlying tokens.

Meanwhile, older altcoins like Dogecoin (DOGE) also have a higher chance of survival, especially amid speculation that Twitter could be integrated into the pipeline.

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, less liquidity and higher volatility would face a higher crash risk. 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 herein are those of the author and do not necessarily reflect the views of Every investment and trading move involves risk and you should do your own research when making a decision.


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