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What happens to Bitcoin if the stock market crashes?

bitcoin stock

Will economic meltdown benefit or cause bitcoin market crash?

The last major crash we had was in 2007-2009. Historical study of all minor corrections to major crashes tell us that when market does not have a correction every 4-6 years and keeps climbing – the eventual crash is usually devastating.

History is proof of this.

The most recent one is 2007-2009 bitcoin market crash which happened after 10 years from its previous economic crash. That is important, barring very minor corrections, the stock market has been hitting new uptrend records for the last 10 years.

Everything that goes up has to come down, this is a law when it comes to the economy, gravity has more pull in the economy than in physics.

That brings us to the all-important question.

If the economy were to come crumbling down – how will it impact Bitcoin’s price?

Positive factors working in favor of Bitcoin

Inverse relationship of stock market and gold

Whenever Equity market crashes, people flee their investments into other asset classes and gold used to be the first stop for such a diversification. This inverse relationship has been a known fact for the stock market veterans and they usually liquidate their stocks into gold whenever the market reaches its peak.

Gold has a major flaw.

While providing a safe haven for the investments – it is notoriously difficult to spend gold in the time of need.  Bitcoin has an advantage over gold in this aspect. It can be used as currency.  It is relatively easy to liquidate to Bitcoin into Fiat these days and in some location – there is no need to convert either.


Millennials are 35% of the workforce and that is important because…

Bitcoin is quickly becoming a major alternative asset class and is more popular among millennials than gold.

When a major working class decides to invest in a certain asset class – it only has one way to go – up. This will be even more so when it becomes an alternative during the time of crisis. More and more millennials are placing their trust in Bitcoin over gold or Government, and this trend is expected to continue.  That is a bullish sign for the future of Bitcoin in particular and crypto space in general.

Hedge against Fiat

More and more countries are becoming victims of high inflation. Zimbabwe, Argentina, Venezuela and recently Iran joined the list where the failure of fiat pushed Bitcoin prices through the roof.

These (and other) countries have proved that in countries where people lose their belief in their Government printed money – Bitcoin sells at a premium.

In fact, Bitcoin was 85% more expensive in Zimbabwe and 253% more expensive in Iran.

Next crash is expected to happen because of global inflation and if that happens, there is a good chance that other countries will join hands in pushing the fiat value of Bitcoin.


High demand, limited supply makes Bitcoin better hedge than gold

Consider these factors together:

  • Inflation creates high demand for Bitcoin, this is no longer a theory, we have seen this in recent times
  • Bakkt and other physical Bitcoin custodial services will make Bitcoin even more scarce
  • Millennials are major part of workforce and they are demanding Bitcoin
  • Bitcoin is emerging to be better alternative to Gold as hedge against stock market
  • Bitcoin wallets grew from 3 Million in 2015 to 28 million in 2018 and is growing by the day
  • Coinbase CEO expects number of crypto users will grow to Billion from its current 40 million
When you put these factors together, it looks to indicate that Bitcoin will hold strong even in the times of market crash. In fact, recent experiences indicate that a market crash and inflation may act in favor of Bitcoin.

While it is tempting to get carried away with positive outlook – we shouldn’t ignore the negatives before we reaching a conclusion.

Negative factors working against Bitcoin in case of an economic meltdown

Fear of the unknown

Lot of people entrust Government as their caretaker in case of crisis. Economic meltdown is a crisis that everyone blames on government and look for the same government to save us all from. It’s an idiotic paradox – but that is the accepted social norm.

Many within the Government have openly warned against Bitcoin. If Government officials were to make such announcements during a financial meltdown – it could hurt the sentiment against Bitcoin for the worse.

Masses matter

Crypto market is a minority when compared to rest of the financial markets, Bitcoin is even more so. It is in fact a minority with a bad rap sheet from the past in the minds of ignoramus.

Lot of people don’t even know its existence, except as a news item. It is estimated that only 40 million wallets exist in the world. 40 Million doesn’t even account for a full percentage in terms of global population, while 69% of world’s adult population has access to bank account, according to Global Financial Inclusion report. That just illustrates the power of Fiat over crypto (some may correctly point out that this difference represents the potential for crypto market)

When an economic crisis comes, people will flock their money into things they are aware of, like Gold, Silver, more stocks at bargain prices, physical fiat, goods, etc. They won’t venture into a new asset class that they don’t know what to do with.


Panic results in mass exodus from crypto

It is very easy to scare the crypto crowd.

We have seen multiple examples of this during this year.  If media were to side with traditional stock markets and fiat agencies – it is very easy to create panic and scare people from crypto into whatever their rhetoric may be.

Conclusion

While everyone is waiting to see what this Monday (October 15th) might bring – in a longer term, we at Cryptotapas believe that Bitcoin has a case for strong future.  In fact, we expect an immediate drop in Bitcoin prices when the economy takes a nose dive. 

However, in our opinion, it will make a quick recovery and will head for a steady uptrend.  If we were to mark our calendars – we expect Bitcoin to surpass its previous highs by 2020.

Of course, there are no guarantees and our views are biased since we are Crypto fans and we will have to wait and see to be proven right or wrong.

What do you think?  Will economic crash be a good thing or bad thing for Bitcoin?

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IMPORTANT DISCLAIMER: Do your own research before investing. Crypto space is very volatile, don’t invest more than what you can afford to lose. Everything in this article is an opinion, not the advice of any kind.

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