Nervous investors might look to crypto as a safe haven when the U.S. starts to slip into another recession.
That’s the feeling among a group of cryptocurrency market participants who have been eyeing the ongoing chatter about a forthcoming recession with interest. Last month, former Federal Reserve Chair Janet Yellen weighed in on the possibility of an impending recession in the U.S. In a speech, she said there could be another financial crisis on the horizon, pointing to “gigantic holes in the system.”
Morgan Stanley has also spoken up, noting that the inversion of the so-called yield curve supports their “late cycle view and growing risk of an earnings, if not economic, recession next year,” as reported by CNBC.
The bank’s chief equity strategist, Michael Wilson, sees a 50 percent chance of an earnings recession—when S&P 500 earnings drop on a year-over-year basis for two consecutive quarters—next year.
An Inevitable Recession
Currently, the U.S. economy is in the middle of its second-longest economic expansion in history. Since 2009, stocks have enjoyed hefty gains. But, recessions are inevitable. Some believe one could come this year, amid trade tensions, political uncertainties and rising interest rates. Others are focused on 2020.
Recently, JPMorgan Chase Chief Economist Bruce Kasman said in a report that the stock market is “starting to price in a recession-like scenario.”
For crypto though, a downturn could well be good news. Lee Zuckerman, co-founder and COO of CryptoCake and COO of Webglobal Holdings told ThirtyK “people will run to cryptos. It’s a lifeboat. It allows you to seek shelter.”
Zuckerman foresees an economic event this year that will prompt investors to flock to crypto, lifting prices. If the cryptocurrency market had been around during the 2007-2008 credit crisis, he says, “people would have been protected; maybe they wouldn’t have lost their homes.”
Safe Havens in 2019
Ian McLeod, an analyst for Thomas Crown Art, an art agency that uses the Ethereum blockchain to guard against illicit activity in the industry, concurs.
Cryptocurrencies like bitcoin (BTC) and ethereum (ETH) will increasingly be seen as investors’ ‘safe havens’ in 2019, he said in a press release, adding that the economic downturn could even spread across the globe.
“The U.S., the world’s largest economy, has, of course, considerable influence on Asian and European economies. As such, should the U.S. stock market plunge – as it did recently scrapping all of its 2018 gains during a major sell-off – global markets are vulnerable too.”
Investors may see Bitcoin and Ethereum as a robust means of storing wealth, in the same way they do with gold, McLeod says. A potential recession aside, he believes mainstream adoption in crypto will gain momentum throughout 2019 as the uses for crypto and blockchain technologies multiply.
McLeod says, “as the world moves from fiat money to digital, and as adoption of crypto picks up, there can be no doubt that cryptocurrencies will be firmly in the pantheon of safe haven assets within in the next decade.”
Cryptocurrency trader and analyst Tone Vays has a different take on what might happen to the market during a recession.
During a global recession, bitcoin could come under pressure, he told ThirtyK. Investors who would typically put extra money to work in speculative assets may instead squirrel away cash, and they “might even have to sell the BTC they have to put food on the table.”
If the government were to take extreme measures during a global recession, however, like taking over people’s bank accounts, or if it were to at some point eliminate cash to combat crimes like money laundering, only then would people look to bitcoin to protect themselves, says Vays. Those measures are unlikely anytime soon. But, if they were to eventually come to fruition, bitcoin would be sure to benefit.