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Is Bitcoin a safe value in case of economic crisis?


Bitcoin is a decentralized digital asset without a central bank or single administrator, it can be sent from user to user without any intermediaries but with certain transaction costs. Bitcoin was launched during 2008 financial crisis by an unknown person or a group using a pseudo name Satoshi Nakamoto.

Global Economic Crisis and Bitcoin

Despite stock market price hike, the world economy Is not doing quite well. Things haven’t been so much instable since the cold war which signals another financial crisis by 2020. Current complex situation indicating the upcoming economic crisis elements include US trade wars with China and other countries, restrictions on migration, foreign direct investment, and technology transfers could have profound implications for global supply chains while raising the risk of slower growth with high inflation. On the other hand, the EURO and the British economy is also facing the Brexit challenge and budget deficits.

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Recently U.S. Federal Reserve has cut its rates by 25 points despite having stronger economy and lowest Unemployment rate in decades but taking the global economic slowdown into account and being pressurized by the White House Officials especially U.S. President Donald Trump for the rate cut, Federal Reserve managed to cut 25 points while the expectation was decrease by 50 points. Though there are certain speculation that, FED might cut rates for 2 times at least by the end of 2019 but it is still quite uncertain until FED confirms them after evaluating the upcoming economic data.

The Fed Chair seemed optimistic, but when we look at the yield chart, we get different prediction. An inverted yield curve is an interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This significantly indicates an economic recession.

The following chart represents the yield variations between the U.S. 10-year and also the U.S. 3-month over the past decade. In late 2006, the yield inverted for many months, followed by the 2008 monetary crisis and the U.S. economic recessions (the gray area). when over ten years, we are back within the negative space.

GOLD and BITCOIN – Correlation of Safe-Havens

As global risks emerging, traders and investors are currently more concerned with the diversifying their investments to avoid the financial crisis shock. Apart from Bitcoin, Gold price has surged broadly crossing $15,00 already this year as concerns over trade wars and a global economic slowdown. The fears of upcoming financial crisis and probable stock and housing market crash again is leading the investors to GOLD as well. Price of GOLD has surged 16% since May 2019 which is currently residing above 6-year peaks above $1250 per ounce.

According to a recent report from Bloomberg, the correlation between Bitcoin and GOLD has almost doubled in the past three-months. Though 3 months data set is relatively minor but as per recent study the two assets were traded inversely 49% of the time while in correlated downturn by 22% and uptrend by 29%.

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