In recent months we’ve noticed increased chatter about the possibility of a global recession. Whether that chatter is well-placed is anyone’s guess.
A more interesting question is perhaps what the price of Bitcoin might do should a global recession materialize in 2019 or 2020.
Could we just look at what the price of Bitcoin did during past recessions and assume that’s how the price would respond if a recession occurred in 2019 or 2020?
The answer to this question is no.
Why? Because Bitcoin was created partly in response to how governments responded to the global financial crisis of 2008.
Here’s a look at trading and price information for Bitcoin since its first trade in 2009.
As noted, the figure doesn’t include a recession – or at least a year in which a recession started (the global financial crisis was still going in in 2009).
Speculating with an experience history
Given that we don’t have any history of how the price of Bitcoin might perform during a recession, how might it respond?
Let’s take a brief history lesson. The creator of Bitcoin – famously known as Satoshi Nakamoto – cared about two main things (please note that the identity of Satoshi Nakamoto is unknown).
The first was privacy, something that would likely be unaffected by a recession.
The second was centralized government control over such things as monetary policy. The founders appear to have been disgusted by the massive money printing operations by central banks across the globe in response to the global financial crisis.
Their solution was Bitcoin – a currency that avoids government control and attempts to encourage privacy.
Now, let’s go back to the question at hand. With this background in mind, how would Bitcoin respond should a recession materialize?
We, of course, don’t know. One might speculate that if central banks start printing money again like they did in response to the past recession, that Bitcoin would rise quickly. The cryptocurrency is in a limited supply, so if one increases the supply of dollars/euros/all other currencies, that makes Bitcoin worth more (theoretically) than competing currencies.
The cryptocurrency may even perform better if hyperinflation shows up, as Bitcoin could be a strong hedge against money printing presses.
Overall, Bitcoin (well, holders of Bitcoin) could very well be the beneficiary should a recession happen in 2019 or 2020. Holders of Bitcoin would be well-positioned as hedge-holders against inflation and currency devalation.