Bitcoin was created as a reaction to the Great Recession of 2008. No recessions have occurred in the United States since that time, so Bitcoin has never been tested in such dire economic circumstances like those of 2008.
Bitcoin has plunged nearly 70% from its all-time highs of just over $68,000, but the economic challenges facing the US today still haven’t been classified as a recession. If the US is faced with a recession in the coming weeks or months, how will Bitcoin fare? Will it actually solve the problems it was created to fix?
Although Bitcoin was created to counteract recessions and economic crises, it still accounts for only a small portion of the national and global economies. Bitcoin and other cryptocurrencies themselves won’t be able to prevent economic obstacles. The total cryptocurrency market is just a tenth of the total market capitalization for all global companies.
In addition, since the pandemic, many institutions and retail investors have gotten into cryptocurrency investing. It is normal during economic crises for investors to try to minimize their risk. Cryptocurrencies are currently seen as extremely high risk investments by investors and institutions alike. As we have already seen throughout the last few months, investors will reduce their risk by selling off their Bitcoin holdings, further lowering Bitcoin’s value.
There have been a multitude of companies that have arisen throughout the last few years involved in the cryptocurrency space, whether they be exchanges, investment companies, or crypto funds. Some of these companies have become among the largest in the world, with valuations in the billions or tens of billions of dollars. In the last few months, dozens of cryptocurrency companies have gone out of business or face terrible circumstances, including Voyager Digital, Vauld, and Coinbase.
A recession would just multiply this number, resulting in massive layoffs, pay cuts, and failures. Cryptocurrency companies going out of business put more fear into investors with regards to Bitcoin, so Bitcoin may falter even more.
Bitcoin’s objective is to prevent economic crises and recessions. Until the cryptocurrency becomes a larger part of the global market and a more prevalent part of our daily lives, it won’t be able to fulfill this goal.