Why Bitcoin will prosper during a recession

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The US stock market is hovering around a record high and the S&P 500 is up about 19% so far this year. The March 2020 liquidation gave us a glimpse of how quickly panic and fear can plunge stock prices – but as the effects of the COVID-19 pandemic continue to ravage our daily lives, small businesses and businesses alike. many sectors of the economy, the worst seems to be over for the market as a whole.

We don’t know when or in what form the next recession will come. But we know that today there are different ways to prepare for it. The old, proven method of weathering a recession is to use high-quality cash and dividend-paying stocks with strong balance sheets. This method remains a great option, but the same goes for investing in bitcoin (CRYPTO: BTC). Here’s why bitcoin, the world’s best asset over the past decade, is also one of the best ways to fight a recession.

Image source: Getty Images.

1. It was built for this

Bitcoin was formed in the crucible of the Great American Recession. In response to the widespread failure of the traditional financial system, Bitcoin’s anonymous founder (s) set out to create a currency that people could trust and operate without third-party intervention. They have succeeded in creating a non-fungible store of value independent of any sovereign nation.

2. It is inherently diverse

One US dollar in China is equivalent to one US dollar in France. But it is still the official currency of the United States, which means that it has all the advantages and disadvantages of the American economy. In addition, it can be difficult to obtain, store and use other than cash in many countries.

Bitcoin is inherently diverse because it is not subject to the gain or loss of an economy. Rather, it represents wealth without borders.

As we saw in 2008, recessions can spill over to countries with common economic interests. Although the US, EU, Japan, and many other developed countries experienced economic downturns in 2008, many developing countries around the world actually expanded from 2007 to 2009.

Outside of macroeconomic trends, the price of Bitcoin can move based on regulations, environmental concerns, government crackdown on mining, changes in institutional adoption, or any other factor. But again, these factors occur on a case-by-case basis, ensuring that the value of bitcoin is not vulnerable to a singular event.

For example, the US Security and Exchange Commission is cracking down on cryptocurrency exchanges such as Coinbase (NASDAQ: COIN) as it attempts to regulate crypto-related financial products. This news has a direct effect on the price of the Coinbase share. News like this can also cause the price of bitcoin to fluctuate, but to a lesser extent, as the future of bitcoin does not depend on the regulatory policy of any country, even the United States.

3. It is a secure and globally transferable store of wealth

Bitcoin’s value is derived from its scarcity, security, and portability. Like gold, bitcoin exhibits characteristics typical of a commodity in that it is valuable regardless of how well an economy performs. Unlike a stock, its upside potential is not directly the result of strong favorable winds in the industry, technological advantages, innovation, financial discipline or a great management team. On the contrary, it has value in both economic expansions and contractions.

While it is true that Ethereum (CRYPTO: ETH) has more practical applications than bitcoin, and potentially more on the upside, bitcoin is better positioned to perform during a recession. Its focus is not focused on the growth of smart contracts, non-fungible tokens, or other practical use cases for blockchain technology. On the contrary, the purpose of bitcoin is to build a store of value.

4. The total supply is capped and the added supply decreases

Bitcoin gains a lot of credibility because its algorithm has stood the test of time. Since its inception in 2008, the bitcoin protocol has systematically regulated supply by ensuring that the pace of bitcoin mining remains constant and that the additional supply per block mined decreases over time.

Computing power represents the demand for bitcoin. Of course, it has increased. But unlike the effects of increasing the number of sawmills in the lumber market or drilling activity on oil and gas supply, the amount of computing power involved is irrelevant and is not relevant. in no way affects the offer.

Built to last

If we compare the attributes of bitcoin to those of other fiat currencies and cryptocurrencies, it is clear that bitcoin is tailor-made to be an asset worth holding during a recession. However, there is a good chance that bitcoin could underperform Ethereum in the long run, as well as several alternative tokens with more potential.

For people new to the crypto space, however, bitcoin remains a good entry-level option to get your skin in the game with less risk.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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