There is an apparent fear of an upcoming recession floating around with a strong intensity for the past few months. Amid the fears of recession, the general trend is the loss of trust in the stocks of various companies. But what connection do the falling stocks have with bitcoin? Is bearish stock market a bad signal for cryptocurrencies and primarily, bitcoin price?
The co-founder of Plouton Mining, Cole Walton, recently got in touch with BlockPublisher as he explained the expected effects of US-China trade war on bitcoin’s price stating:
As we saw this week, with the U.S. stock market (Dow) dropping -1.5% on the week and ending down -800 points or -3% for its worst day of the year on Wednesday (the 2/10-year Treasury spread briefly inverted signaling recession), the Donald Trump/Xi Jinping trade war could have very serious negative effects on traditional risk assets like U.S. stocks.
While geopolitical instability across the world is bad for global financial health, the exact thing can prove itself to be a blessing for the crypto community. With global finance structure getting destabilized and risks of a recession looming around, investors can start opting for safe havens and store-of-value assets such as gold, silver, etc.
Since bitcoin is the mirror of gold in the digital world, the same inflow can prove itself to be beneficial in the sense that it can bring new investment into this space thus increasing the demand and the price. Cole added;
Recently, we have seen bitcoin exhibit a new pattern of behavior, actually rallying and acting as a safe haven when traditional risk assets, like US stocks, have had sharp declines.
The correlation of bitcoin with gold, the stock market, and the USD has been on the insignificant side. There is no apparent trend that bitcoin follows along with the movement of the traditional assets. So as the stock market goes down, it does not necessarily mean bitcoin will go down too. This also means it can then become a trusted store of value at a greater scale overtime if it shows more stability in terms of its all-attention-seeking price. Still, the trust in bitcoin is on the lower side when it comes to comparison with traditional assets like gold.
Although bitcoin hails itself as a store of value, it has been engulfed in the problem of price volatility since the beginning. The price is seen swinging too often. One day the asset is seen shooting up and the very next day it is down on its knees. Just at the beginning of April this year, bitcoin was flowing in the lower $4,000s whereas currently, it stands at $10,165 at the time of writing. A significant gain despite the consequent drops seen in the past few weeks.
Bitcoin has evolved itself into a store of value irrespective of the level of trust that there is among the financial community. With each passing day, developments are being made in the bitcoin world on both the technological and legislative end.
As issues regarding regulatory clarity, price manipulation, volatility, liquidity, and institutional adoption get better, it is expected that bitcoin will establish a better image for itself in the future. While the traditional market across the globe stumbles, bitcoin has now got the chance to capitalize on it by acting as a credible alternative. With even
Facebook launching its own cryptocurrency Libra, it remains to be seen how the destination turns out for bitcoin in this race. Either it goes to the top defying all odds or will it come crashing down as suggested by Warren Buffett, nothing can be said for sure right now.
As rounded up by Cole:
We, at Plouton Mining, believe bitcoin will increasingly be valued as a safe haven and true store of value by traditional investors, which should lead to true price discovery at levels much higher from the current spot price.