Can Cryptocurrency Survive the 2022 Recession?

Can Cryptocurrency Survive the 2022 Recession?

Cryptocurrency
June 22, 2022 by Diana Ambolis
373
The most important and revolutionary technological development since the Internet, in my opinion, is the ground-breaking blockchain technology that powers cryptocurrencies. Enables us to switch from the existing multi-trillion-dollar economic systems to decentralized ones that are more open, just, and quick. Of all things, there are still many incomplete jobs. With cryptocurrencies, we are moving
Can Cryptocurrency Survive the 2022 Recession?

The most important and revolutionary technological development since the Internet, in my opinion, is the ground-breaking blockchain technology that powers cryptocurrencies. Enables us to switch from the existing multi-trillion-dollar economic systems to decentralized ones that are more open, just, and quick.

Of all things, there are still many incomplete jobs. With cryptocurrencies, we are moving toward that future. Over time, patient investors will gain a lot from cryptocurrencies.

Despite my long-term bullishness, the near-term outlook for cryptocurrencies scares me. That’s a result of the phenomenal run the cryptocurrency market has experienced in recent years. When the Covid-19 epidemic first appeared 21 months ago, the entire cryptocurrency market was estimated to be worth over $140 billion. The market for cryptocurrencies has increased by 15 times to $2.1 trillion in less than two years.

Stock investing is a two-way street. Particularly in the case of cryptocurrencies, price increases are not linear. The cryptocurrency market has a lengthy history of severe volatility, with values rising and falling by thousands of percent in a single year. A short-term decline in an asset class with this much volatility after a 15X growth in just two years would be absurd to assume.

An adjustment in 2022

Cryptocurrency investing is dangerous. The Federal Reserve (Fed) intends to increase rates three times in 2022 following excessive stimulus and liquidity. When the Fed raises interest rates, financial markets often become less risky. Investors may have less interest in cryptocurrencies when a new cycle of rate hikes gets underway.

Inflation will decline dramatically in 2022, according to the bond market. If inflation cools next year, fewer investors will seek inflation hedges, which might harm crypto prices. Furthermore, short-term trendlines are negative. For the first time since 2021, the price of bitcoin dropped below its 50-, 100-, and 200-day moving averages. The estimated cost of technical support is $42,000. A move toward that level looks possible.

Overall, we’re near-term crypto pessimistic. 

In the next year, we believe that strong adoption trends, evolving legislation, improved technology, and wise investment will drive the cryptocurrency markets. Long-term bulls enjoy this. Future opportunity exists in the current weakness.

Cryptocurrency Will Survive a Recession

Most economists agree that a recession is defined as two consecutive quarters of declining GDP. This definition states that the “Great Recession” of December 2007 to June 2009 was the last time the United States experienced a recession. The economy is struggling as a result of inflation, the situation in Ukraine, and issues with the supply chain for the coronavirus. Stress is likely the final obstacle.

Cryptocurrencies: Can they withstand a downturn? There hasn’t been a recession in cryptocurrency. After the “Great Recession,” Satoshi Nakamoto created Bitcoin. The National Council brilliantly described the housing market meltdown for Social Studies. The market had enormous leverage, investors disregarded fundamentals in pursuit of short-term gains, and the Federal Reserve changed its interest rate strategy.

Case study:

The $1 trillion cryptocurrency sector, according to many, is here to stay. “Too big to fail” has been disproved on numerous occasions. Given that cryptocurrencies are mostly unregulated and that many government officials are against them, it is unlikely that they would receive assistance from the government in the case of a severe crash. The decline of Terra Luna in less than a week reveals the fragility of the cryptocurrency industry.

Leverage might bring down cryptocurrencies as well. Utilizing debt as leverage increases investment results (or losses). Bitcoin leverage reached a record high in January. Leverage of 10x, 20x, and 100x is common on exchanges. Investors will sell their assets if prices fall dramatically, causing a massive sell-off. A “death spiral” of selling could result from this. Many people have drawn parallels between the use of leverage in cryptocurrency markets and the shady lending practices that caused the housing market catastrophe.

Cryptocurrency markets have little control over external economic factors. The Federal Reserve balances inflation and economic growth. The Federal recently hiked interest rates to support the economy and contain inflation. The Federal Reserve balances inflation and economic growth. More money is available in the economy thanks to lower interest rates, but inflation rises. Higher interest rates increase borrowing costs for businesses and consumers, lowering consumption. Rate increases could start a recession. In a downturn, people could have to liquidate their cryptocurrency holdings to cover living expenses.

Also, read – Crypto trading bot Tutorial and Things to Know

False Case

Despite the concerns of the bear case, cryptocurrency should survive a recession. The 2021 Geography of Cryptocurrency Report, which Chainalysis produced, provides information about cryptocurrency adoption by country, region, platform, etc. Although the U.S. economy is the primary subject of this study, Bitcoin is a global asset. El Salvador uses bitcoin as its currency. Because of their widespread use, cryptocurrencies will still be relevant if one nation’s economy collapses.

The economy hasn’t stopped blockchain from expanding. Compared to startup investments, the economic cycle moves more quickly. A venture capital fund invests in fledgling projects that need time to grow and get off the ground. The project’s overall cost is then calculated. The Economic Times reports that in the first three months of 2022, $10 billion was invested in cryptocurrency exchanges. Projects are continuously being created despite the economic downturn. We’ll see new projects as long as the money keeps coming in. VCs continue to invest in cryptocurrencies despite increased regulation and an unstable economy.

The potential of cryptocurrencies is essential for surviving a recession. Cryptocurrency is no longer just for peer-to-peer transactions. The current use cases for cryptocurrencies include DeFi, NFTs as art, gaming, and Polygon Nightfall. Though not generally adopted, numerous other use cases have been put forth. The use of cryptocurrency for decentralized storage, digital identities, and housing documents has immense potential. Numerous businesses have entered the bitcoin sector, lowering the likelihood of a collapse.

Looks delicious, this dip.

However, we’ll buy this dip cautiously. The market is flooded with questionable investments, yet cryptocurrencies are the wave of the future.

According to a recent study by Chainalysis, digital currency investment fraud, which involves cryptocurrency developers creating a false project, making money from coin sales, and then selling all of their tokens to uninformed retail investors, will be a $2.8 billion industry in 2021. Even worse are “pup coins.” Few people claim that it was worthwhile. Many people fall short. I’d say that 90% of cryptos will fail. In emerging tech markets, it is typical. 1999–2000 dot-com bubble Numerous online businesses closed.

As a result,

Recessions harm most markets and sectors. Cryptocurrency may suffer more than other industries due to its legal uncertainties and infancy. The underlying technology and its use cases will improve businesses’ and individuals’ lives. It’s difficult to see all of this disappearing because of a bad economy.

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