bitcoin

Central Banks Can’t Deny Bitcoin amid Recession; Here’s Why

Avatar Davit Babayan 3 months ago

It is difficult for central banks and governments to deny and ban bitcoin amid a recession, according to prominent market analyst PlanB.

The Twitterati on Tuesday said the cryptocurrency needs to show a negative correlation with the macroeconomic market: such that the value of one variable increases while the other decreases. The next recession is a “stress test” for bitcoin, a non-sovereign asset, which has remained an uncorrelated one for the last ten years. PlanB believes the cryptocurrency could break the so-called correlation once the global market meltdown kicks-in.

“So if bitcoin indeed shows a negative correlation in the next stress event (recession), then it will become difficult for central banks and governments to deny and ban,” tweeted PlanB. ‘It would also trigger a lot of institutional demand.”

Correlation Grows

The comments came as investors digest the prospects of a global meltdown event during the next year. They believe that the rising geopolitical risks, coupled with the ongoing trade tension between the US and China, would push the market into recession. Findings from Absolute Strategy Research showed 52 percent of investors believe in the likelihood of such an event. It was the first time since 2014 the chance over a recession went above 50 percent.

Bitcoin, on the other hand, has practiced restraint against macroeconomic risks. The cryptocurrency surged by more than 150 percent between May and August, the period which saw an escalation in the US-China trade war and depreciation in the value of China’s renminbi. That led prominent analysts to prove a growing correlation between bitcoin and global markets. Ken Xuan, a data scientist at Fundstrat, said in his August note that investors were treating bitcoin as a safe-haven asset.

“The recent Bitcoin rally strengthens the argument for Bitcoin as a store of value,” he added.

Others also believe that bitcoin’s correlation with the global market is positive, not negative. Data research startup CoinFi writes:

“During extreme events like the global recession, the correlation for the crypto market will be similar to that of traditional financial markets. That is, risky assets (ie equities, crypto) will go down together with the broader market.”

Political Intervention

Bitcoin’s growing status as a so-called safe-haven asset – nevertheless – did not sit well with politicians in the White House. A week after the cryptocurrency had just established its year-to-date high near circa $14,000, US President Donald Trump lambasted the cryptocurrency industry via his tweet, stating that he is “not a fan bitcoin” because it has no real value. Some days later, Treasury Secretary Steven Mnuchin called bitcoin “a national security issue” followed by a comment that nobody would be talking about cryptocurrencies in the next four to five years.

Meanwhile, central banks around the world are watching and studying bitcoin. They are also planning to launch their version of bitcoin: a centrally-issued digital currency to improve transactional flow in and outside the country. Some countries, including India and China, have imposed banking or trading bans on all kinds of cryptocurrencies.

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