financial crisis

Can Bitcoin Prove Itself During a Financial Crisis?

Have we not all wondered at some point of time that what happens to Bitcoin if we witness another economic meltdown- a financial crisis comparable to the 2007-2008 collapse.

Would crypto enthusiasts be compelled to liquidate their Bitcoin assets or would they resist the temptation? The answer to this lies in the profile of the investor. A crypto entrepreneur or developer who gets paid in cryptocurrency, and who pays for her/his expenditures in Bitcoin as well would be able to eke out an existence in the crypto economy.

Such hodling should give the world’s first cryptocurrency a never before stability. Consequently, this resilience amidst economic burn down will lure more people to invest in Bitcoin. These newcomers will be the ones who previously had never partaken in the crypto economy. The new entrants will not be speculators they will use Bitcoin as a hedging mechanism.

However, there will also be a percentage of people who are invested in Bitcoin, but their primary source of income is fiat. The salaries of such people will get a blow owing to the financial meltdown. The question that now arises is if the dominant crypto economy (which is driven by people who use Bitcoin as not just an investment tool but also as a medium of exchange of value) is big enough to offset the selling of Bitcoin that will come from partial investors.

With more and more crypto exchanges, trading platforms, as well as custodial services coming up, we foresee a lot of investment coming into Bitcoin from Wall Street in 2019. This influx of funds from institutional investors will undoubtedly lead to a surge in the price of Bitcoin. However, it can also invite volatility. Institutional tools might give the investors the means to get in, but often they also serve as the medium to get out. This was noticed in the case of short selling that occurred after the launch of the Chicago Board Options Exchange’s Bitcoin future contracts.

Hence, in ugly times the stability of Bitcoin may not last a long time. The question of whether Bitcoin will prove itself as a reserve asset in case of a financial crisis can only be answered when the situation actually happens.