Cryptocurrencies and The Looming Financial Reckoning

8 119
Avatar for Pantera
2 years ago

The question is not about the looming economic disaster.

It matters to all in this market, by the same degree, how cryptocurrencies will behave during times of economic uncertainty and this possible macroeconomic calamity.

Source: Twitter

It is not all bullish for cryptocurrencies, as some may suggest on social media. A lot that is happening is bullish, but negative conditions are equally possible under different conditions.

In March 2020, a vast dip occurred. Many knew it was going to happen and were on the sidelines, waiting.

Right before the BTC halving, this was an excellent entry point, one that lasted only a couple of days.

Remember The 2020 Crash

Many young “whales” manipulating the market for years simply vanished in March 2020. They sold and kept selling. The March 2020 shocking moments were met with Grayscale increased crypto purchases for months. After that, it was Microstrategy, PayPal, Dorsey, and eventually, Musk bought the top of BTC, and since it was Musk, the price moved higher for a few more months.

However, during these covid years, our economies started crumbling. Stocks decoupled from mirroring the real economy, and instead started moving dis-analogous to the fundamentals as corporations’ profitability, productivity, and future potential. Half of the NYSE-listed companies would be bankrupt today without the massive influx of funding from the USA government. Similar was in the EU.

The economy transitioned from capitalist to a strange model of corporatist socialism in a blink of an eye. Everyone was glad to receive a paycheck of $1000, yet this money will be asked back tenfold in the future.

How this all matters to crypto, nobody can tell with certainty. This is about putting things under perspective and examining previous examples and experiences.

13 years after the previous financial disaster, everything still hangs by a thread, but it can also last for years more. A financial disaster is certain and the longer it is delayed, the worse its effect will be upon us.

The question again is how crypto will perform and if it will be the right place to store our wealth and use it as digital cash instead of fiat.

Is this time Different?

Source

This bull run was no different.

Most networks didn’t suddenly experience an upsurge of traffic and new users. Take Cardano, for example. How useful to the world was it back in 2017 and how different is it today?

Cardano has produced nothing yet, but maybe after all these billions poured into this ecosystem, there is some hope. But once again, this is all still Charles Hoskinson talking.

We also read how Polkadot is going to kill Ethereum, yet Polkadot looks like it is only following the Cardano ways of hype.

We should always take pointless hype with a pinch of salt.

These projects are even worse than Tron and EOS that at least delivered a centralized version of a fast Ethereum. EOS had potential but it didn’t last after inside conflict and centralization issues.

Once again, the utility of the blockchain networks is a serious indicator of a top and a reversal of market sentiment and prices.

Although nobody knows exactly when the market will crash or the reason, it will certainly crash. And buying the dip is a great option, as always.

How many times did we think this bull run was over and is this time different?

Probably not.

Although there was a signal yesterday that led prices to lower and made the top bots panic.

New Covid fears for a different mutation from Mozambique and South Africa and the endless spread of fear in our societies and economies. This is the new FUD. Not saying it is not real, this needs analysis few can perform. Still, it is a method to spread fear-uncertainty-doubt.

Under these conditions, anything we have studied, and all our experience in running a business, is obsolete. How can we plan to invest or start a business when a lockdown may just apply the next day?

And what about the crypto potential and our investment? Will they be affected?

As mentioned previously, this “event” (Covid) can create panic and turn the tide of sentiment to negative. The greatest fear of all is a recession in the Western economies.

The March 2020 Dip, again, is the Paradigm

Source: Pixabay

Bitcoin dived to $4000 in March 2020, as Western nations started enforcing lockdowns and fears of recession crumbled the foundations of our “casino economies”.

The FED printer was the temporary solution, and the freshly printed money was mostly handed out to corporations. The infinite QE, government aid, and helicopter airdrops of cash pushed most markets into a temporary euphoric state.

But we all know what happens. Euphoria is the final stage. After the bubble reaches its threshold, then comes a real crash, one like in March 2020, followed by recession.

Regression is natural in economies. The FED can keep playing with negative interest rates if it wishes, but the economic issues will only increase further.

A recession could apply in different ways, but the stock bubble formation seems it will make it a dramatic one. It will be a recession that will create havoc, just like the one in 2008, or maybe even worse.

Although, with this covid panic and the incompetence of our governments, we can’t be sure about indicators and numbers today. Inflation is looting our wages and fiat income and the living cost for everyone has been increased by about 20-50% in one year.

Crypto, even as an investment, offers an easy way out, although nobody can guarantee prices of cryptocurrencies will not dive during a recession.

The most probable outcome is the highly speculative funds will exit the most volatile investments. Where can they move into, though? Gold or bonds? As the risk for an economy increases, bonds can be dangerous too.

Liquidity injections by Central Banks in already liquid markets

Mass adoption of cryptocurrencies is of paramount importance to achieve their long-term viability.

A recession usually offers low inflation levels, though. It is not exactly the reason cryptocurrencies thrive.

To avoid a recession, the FED reacted by injecting liquidity in an already liquid market, out of fear of a repeat of 2008.

But as with 2008, liquidity wasn’t the issue. In September 2007, all the discussions were about the lack of liquidity in the market. The economy was suffering from fundamental issues, though. It was never about liquidity. And the gross mistakes affected the progress of two generations, while completely destroying some regional economies.

If you have studied finance or had any experience in the banking sector, you certainly understand all the terms and concepts explained in the movie “The Big Short“. This movie explains the situation that led to the greatest recession of the century.

After 2008, this is another world. Iraq, the Twin Towers, Vietnam are no comparison to the massive scale of changes around the world since the 2008 recession.

In Conclusion

Source: Pixabay

A recession will temporarily create havoc in the crypto market, and the reaction will be matching the Dot-com bubble.

Cryptocurrencies will never disappear, at least not those with strong fundamentals, use cases, communities, and decentralization.

Those sending a sound message outside of the “number go up” narrative are sustainable and have a vast potential that no recession can damage.

Centralized cryptocurrencies, though, are in grave danger. USDT is the best example of centralization processes and a danger vastly underestimated by cryptocurrency investors.

The developer’s cost of maintaining a token is zero. During a downturn, they can reduce expenses, halt promotional activities and just come back when conditions are better.

Blockchains running on PoW are protected by the difficulty of adjustment or similar functions that allow the networks to operate without issues. For the top PoW networks, a 51% is not a realistic danger, but smaller networks usually centralize mining operations to reduce this threat.

In summary, cryptocurrencies will be vastly affected in case a similar to March 2020 event occurs or in the event our economies enter a recession.

Although, as with the previous dip, those cryptocurrencies with enough potential, growth, professional communities, and utility will recover, even during a recession.

An economic downturn will not hinder real innovation in the long run.

Images:

Lead Image Source:


DISCLAIMER: All material published in this content, is used for entertainment and educational purposes and falls within the guidelines of fair use. No copyright infringement intended. If you are, or represent, the copyright owner of materials used in this article, and have an issue with the use of said material, please send an email.


Follow me: ● ReadCash ● NoiseCash  ● Medium ● Hive ● Steemit  ●Vocal ● Minds ● Twitter ● LinkedIn ● email ● tipb.ch

Don't forget to Subscribe and Like if you enjoyed this article!

23
$ 11.83
$ 11.20 from @TheRandomRewarder
$ 0.15 from @Omar
$ 0.10 from @Crackers
+ 7
Sponsors of Pantera
empty
Avatar for Pantera
2 years ago

Comments

In the recent year and a half or so I have been vastly shifting my positioning just feeling like something may burst. It seems almost inevitable that it has to. For that reason I am now at 60-38-2. That is, 60% cash, 38% stocks, and 2% crypto.

My strategy has been to take profits where I can, and continue to maintain investments in the stock market I truly believe in, and have enough cash on the sidelines so that if and when things take a turn, I will be able to participate in the next run up after the dust settles.

$ 0.05
2 years ago

Hello, my friend

Yes, you are quite right on the foundation of your article. You know, there are many voices out there, announcing for some time that we are on the eve of a financial debacle of colossal dimensions that will merit an economic reset.

And I wonder, what can we do about it?

Well, no one has an optimal or magic answer. Perhaps the best we can do is the best we do. In the end, adapting is what keeps us standing here, always looking for the best opportunities behind adversity.

In this sense, in the crypto world that is rising, it will not be the exception either.

We live in interesting times.

$ 0.10
2 years ago

Damn but you do know your facts about cryptos... One new thing to me came when you mentioned that some of them were centralized... I didn't even think that was possible based on the fact that they all adopt a blockchain tech... But no reputable one is I think... So,,, recession may affect cryptos,,, but at least we,,, collectively will decide our fate... After all,,, money printed also gets devalued. If something is going to happen to my money,,, I'd still rather the government didn't control it... So, crypto today,,, crypto tomorrow,,, crypto forever!!!! Nice write up... You did a lot of research on this...

$ 0.05
2 years ago

Thank you for always keeping an eye to what had happen to the cryptocurrencies world.

$ 0.00
2 years ago

Here we go again. I'm just glad that I sold my husband's holdings last month as I'm so tired and stressed about checking it. I'm relieved that I didn't wait for this time.

And that leaves mine just. I'm scared again, another long time of waiting as I'm still at loss from the last big dip and every other dip. 😅

$ 0.05
2 years ago

You have to consider the long run. Are your investments just hyped projects or they have vast potential to compete in the digital economy? It is what make sense to me at least. Thanks for the comment and hope you don't get scared or anything. For example, for me Bitcoin Cash matches what I expected to find from a cryptocurrency. But it can be brought down a lot in the shot-term. Aiming for the long run helps make better investments.

$ 0.00
2 years ago