If we were to go through another global financial crisis like the one that started back in 2007, what do you think will happen to cryptocurrencies?
As Michael J. Casey says at Coindesk, this is not an idle question given the state of the world at the moment. Trump’s trade war, upheaval in Italy and market crises in Turkey and Argentina are all playing havoc with the markets.
On top of this, central banks are tightening the reins on monetary policy and its putting pressure on the low interest rates and quantitative easing that boosted markets over the last eight years.
As Casey says, with so many risk factors in the air, it is not unforeseeable that some unexpected event could make global investors sell off and run for the hills. But, how would such an event impact on cryptocurrencies? Would crypto be seen as a safe haven, or would it also be sold off in the panic?
The #bitcoinbelievers claim that it will be an opportunity for Bitcoin and other cryptocurrencies to shine. They say it is “a more versatile alternative to traditional flight-to-safety assets such as gold.” They could become digital havens and the bulls predict the price would surge upwards.
However, the opposite could just as easily happen. Crypto could get caught up in the “departure from risky investments” and they are still seen as high-risk investments by ordinary investors. Typically, crypto is bought when buyers feel upbeat about the market, but it is often the first casualty when people feel less certain and they want cold, hard cash to feel more secure.
Casey says: “We cannot separate the flood of money that flew into crypto at the end of the year from the fact that eight years of quantitative easing had driven a “hunt for yield” in once-obscure markets as the return shrank on now pricey mainstream investments such as corporate bonds.”
Although cryptocurrencies offer an alternative to the conventional marketplace, it cannot be completely isolated from it, although Bitcoin and its peers should be having a conversation about how to strengthen the immutable and decentralised qualities, because that would make a strong use case in the event of another major financial crisis.