Why Bitcoin Will Do Well in A Recession

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The U.S. stock market is near its all-time high, and the S&P 500 is up about 19 percent this year. The March 2020 sell-off showed us how quickly panic and fear could drive down stock prices. However, while the COVID-19 pandemic is still wreaking havoc on our daily lives, small businesses, and many parts of the economy, the worst seems to be over for the market as a whole.

We have no idea when or how the next recession will happen. But we know that getting ready for it is different now than it used to be. Cash and high-quality dividend stocks with strong balance sheets are a tried-and-true way to get through a recession. This method is still a good choice, but so is buying bitcoin. Here’s why bitcoin, the best investment in the world over the last ten years, is also one of the best ways to fight a recession.

Cryptocurrency Is A Great Way To Outlast an Economic Downturn

It Was Built For It

Bitcoin was born out of the Great Recession in the United States. The anonymous people who started bitcoin wanted to make a currency that people could trust, which would work without the help of third parties. This was in response to the widespread failure of the traditional financial system. They were able to make a store of value that could not be changed and was not tied to any country.

It is Inherently Diversified

In China, one U.S. dollar is the same as one in France. But it’s still the official currency of the U.S., so it has all the pros and cons of the U.S. economy. Also, in many countries, it can be hard to get, store, and use in ways other than cash.

Bitcoin is automatically diversified because it doesn’t depend on how one economy does. Instead, it means wealth that doesn’t stop at borders.

As we saw in 2008, when one country’s economy goes down, it can affect other countries with similar economic interests. Even though the economies of the U.S., E.U., Japan, and many other developed countries went down in 2008, the economies of many developing countries grew from 2007 to 2009.

Aside from big-picture trends, Bitcoin’s price can change because of regulations, environmental concerns, government crackdowns on mining, changes in institutional adoption, and many other things. But again, these things happen on a case-by-case basis, so the value of bitcoin is not affected by a single event.

For example, the U.S. Security and Exchange Commission is trying to regulate crypto-related financial products by cracking down on cryptocurrency exchanges like Coinbase. The price of Coinbase stock goes up because of this news. This kind of news can also affect the price of bitcoin, but not as much because bitcoin’s future doesn’t depend on how any country regulates it, not even the U.S.

It Is A Safe and Internationally Transferable Store of Wealth

Bitcoin’s value comes from being hard to get, safe, and easy to send. Like gold, bitcoin has the qualities of a commodity in that it has value no matter how well the economy is doing. Unlike a stock, its upside is not directly caused by strong sector tailwinds, financial discipline, innovation, technological advantages, or a great management team. Instead, it has value both when the economy is doing well and when it is not.

Even though Ethereum has more real-world uses than bitcoin and could have more upside, bitcoin is more likely to do well during a recession. Its goal is not to make smart contracts, non-fungible tokens, or other real-world uses of blockchain technology more common. Instead, bitcoin is used as a way to store value.

Total Supply is Capped, and Added Supply is Decreasing

The fact that Bitcoin’s algorithm has stood the test of time gives it a lot of credibilities. Since its start in 2008, the bitcoin protocol has always ensured that the rate of bitcoin mining stays the same and that the number of new bitcoins added per block mined goes down over time.

The amount of computing power shows how much people want bitcoin. It makes sense that it has gone up. But unlike how more sawmills affect the lumber market or how drilling affects the supply of oil and gas, the amount of computing power involved doesn’t matter and doesn’t change the supply in any way.

Built to last

When we look at how bitcoin compares to other fiat currencies and cryptocurrencies, it’s easy to see that it has all the right features to be a good investment during a recession. But there’s a good chance that bitcoin won’t do as well as Ethereum or a few other tokens with more upside in the long run.

On the other hand, Bitcoin is still a good way for people new to the crypto space to get their feet wet with less risk.