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Is Bitcoin prepared for the next financial crisis?

Cryptocurrency · July 6, 2022

Bitcoin was created as a way to bypass the traditional banking system. But can it survive a financial crisis?

Cryptocurrencies are still relatively new and haven’t been tested in a significant financial crisis. If a global recession arose and banks started to fail, would people still trust Bitcoin? Would Bitcoin prove its independence from fiat?

Bitcoin is not backed by any government or central bank, which means it is not subject to the same regulations as traditional currencies. This also makes it vulnerable to wild fluctuations in value. In 2013, the price of a Bitcoin went from $13 to over $1,000 in just a few months. And then, just as quickly, the price crashed to $200.

Bitcoin is no stranger to crashes. It has had several crashes since 2011. But, it has always bounced back in somewhat favourable market conditions. So, when talk of Bitcoin dying arises, people who believe it will bounce back can be forgiven.

Investors might see Bitcoin as a safe haven when traditional currencies lose value. Although, the current price teetering between $19-20k seems to suggest people are wary. While this volatility makes Bitcoin a risky investment, it could also be its saving grace during a financial crisis. This volatility is also what makes it attractive to investors; the potential for high returns can be very tempting.

The issue is there are two schools of thought. Those who believe Bitcoin is a currency want to replace fiat currency in day-to-day transactions, to use it as it was intended: a currency. And those who see it as an asset, commodity or security to invest into.

Bitcoin was created in the wake of the 2008 Global Financial Crisis. It launched at the right time when trust in traditional financial institutions was at an all-time low. It was the perfect anarchy-like response to greed that cost some people everything.

But over the years, Bitcoin has gone from a niche virtual currency used to buy pizzas to big business with investment funds, billionaires like Elon Musk and even your relatives wanting to buy into the promise of getting rich quickly.

You could argue that Bitcoin became the very thing it swore to replace. Time will tell if Bitcoin is truly unpegged from fiat as the US and other global economies begin to head into recession territory.

Dwayne

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