Apart from the fact that Bitcoin is not integrated with traditional finance, it also has another trick up its sleeve: it can’t be forcibly sold to cover your financial losses in other markets. This is very good news should there global stock markets collapse.
We know that Bitcoin’s price is volatile. This is because there is what Marcel Pechman calls “the discrepancy of its use cases.” Some see it as a store of value, others as a tech project or a type of software and network.
The stories about Bitcoin’s potential change over time. El Salvador’s BTC adoption should show us how the Lightning Network performs, with the Layer 2 scaling solution allowing instant and very cheap transfers. Pechman says, “As these narratives about Bitcoin shift over time, so does BTC’s correlation to traditional assets,” gold being one that has attracted special mentions. For example, the March 2020 crash caused devastation in almost every asset class, but during the six or seven months that followed, recovery was virtually identical for gold and Bitcoin.
BTC also appeared to “mimic the Hong Kong stock market”, Pechman points out, if you follow the Hang Seng Index. However, will it succumb to the Hang Seng downward movement seen in the past 90 days? Pechman suggests it might be better to decouple it from the Hang Seng now and allow Bitcoin to continue being “a safe haven amid a general correction.”
Due to the recent disastrous results for China’s Evergrande Group that forced the company to postpone payments over its debt, which is in the range of $300 billion, analysts are concerned this could severely impact the broader market. As we have seen over the weekend, almost all cryptocurrencies have taken a dive. The crash in May this year was also due to China, in this case the banning of crypto mining.
Bitcoin has never faced a major economic crisis, largely because it was created in response to the previous one. Now there could be one that puts the $250 trillion-plus global debt markets at risk. Could Bitcoin survive this?
Pechman says: “Until Bitcoin becomes fully entrenched in financial markets and accepted as collateral and deposits, the mid-term systemic risk for the cryptocurrency is lower than the traditional market.”
In this case, having Bitcoin could save the day if the global stock markets crash, and because it has an edge over traditional markets like commercial real estate, stocks, and bonds. That’s worth thinking about.