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Can Bitcoin be the saviour during the next Global Financial Crisis?

The housing collapse in 2008, that shadowed the global financial markets, has had gripping repercussions on the global economy.  With Greece, Venezuela and many other European countries still trapped in high recession, their economies are looking shaky and unstable. This is the consequence of the Great recession and countries are still feeling the ripples of it. As much as we don’t like it, another economic crisis is inevitable if the monetary policies aren’t very effective.

An economic crisis is a signal of how the existing monetary system has failed, which prompts for alternatives. Outside precious metals and the good old barter system, Bitcoin appears to be the best fit alternative to the existing system. Decentralized, border-less, peer-to-peer, and open-access digital currency surely seems to be a best fit in the face of calamity. Let’s look into how prepared Bitcoin is for the next Economic Crisis:

Sailing on both Tides:

An economic collapse can be of two types: Inflationary and Deflationary

the-vicious-cycle

Inflationary collapse or hyperinflation happens when an economy experiences very high and usually accelerating rates of inflation. This rapidly erodes the value of the local currency causing the population to minimize their holdings of local money. The population normally switches to holding relatively stable foreign currencies. Under such conditions, the general price level within an economy increases rapidly as the official currency quickly loses real value. The value of economic items remains relatively stable in terms of foreign currencies.

Deflationary collapse or Deflationary spiral happens when a period of decreasing prices leads to a situation whereby the economy collapses. Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the real value of money over time; conversely, deflation increases the real value of money – the currency of a national or regional economy. This allows one to buy more goods and services than before with the same amount of money. Economists generally believe that deflation is a problem in a modern economy because it increases the real value of debt. This may aggravate recessions and eventually lead to a deflationary spiral.

How Bitcoin would fare under both circumstances:

bitcoin-inflation

Inflationary collapse:

inflation-cycle

In an inflationary collapse, people would be scrambling to buy bitcoin and other solid assets such as gold. This would be in an effort to preserve their savings from the debilitating effects of inflation. But for Bitcoin to be favored over other assets, the adoption level of Bitcoin should be very high. The digital currency should evolve to a stage where it can be used for all day to day transactions. This is prevalent in countries like Argentina, Venezuela and Greece. Users are actually looking at Bitcoin as an alternate to acquire foreign currencies and goods.

Deflationary collapse:

deflation-cycle

In this case, for Bitcoin to actually be preferred as an escape option, the currency should see mainstream adoption. The central banks and lenders should be able to accept Bitcoin in exchange for debt in fiat currencies. Unless the scenario is that positive, you’d see a massive selloff of bitcoin. This is because people would want to get as much USD as possible in order to pay debts.

In a financial crisis, there are limited tools available to sovereign entities to stem the crisis. Devaluation, bail-ins and capital controls are the go-to tools, Bitcoin counters them all. Bitcoin extends the basic properties of good money with extreme, no-cost portability, security and stealth. These properties are extremely valuable in cataclysmic financial collapse. However its utility majorly depends on adoption of the cryptocurrency before the impending crisis.

Bitcoin Price Analysis: Could rising interest rates threaten the uptrend?

After riding high on fundamentals during September, Bitcoin has had a positive start for October. The price remained fairly over $600 in September with the fag end of the month testing heavy support around $595. After the rebound from $595, the price has now rallied to over $610 over the weekend. While the setup looks bullish, let’s look into the price analysis for October:

Fundamental Key Points:

The adoption of the cryptocurrency and its underlying technology has always been the fundamental positive for the Bitcoin ecosystem. Here are few highlights of the past month fundamentals that might continue to have a prolonged effect on the prices:

  • Blockchain Firms Axoni and R3CEV’s Data Management Trial for 6 Major Financial Institutions
  • Winklevoss Bros’ introduction of daily Bitcoin auctions and Gemini’s expansion to Hong Kong and Singapore
  • US Congress calling for a legislation to regulate Bitcoin and Blockchain Technology
  • Deloitte coming into the Bitcoin scene with the launch of a Bitcoin ATM
  • UK to amend laws to accommodate Digital Currency Exchanges

Any continued activity pertaining to the above key points is sure to have an impact on the prices. Adding to the above, from a macro perspective, rise in interest rates might boost the prices of Bitcoin. Nevertheless it would also depend on the timing of the news release and the trading prices at that point.

Technical Analysis:

Long Term Trades:

The Long Term prices have been in an uptrend from the start of this year, with the 200 SMA (in Yellow) getting breached only once during this duration. The $595 level has been a good buy zone and can slowly become the change point for a long term trend. With previous swing lows at $560 as a stop, one can enter into a long term trade at $595. The previous swing high at $778.71 can be a target.

If the market is unable to breach the 100 SMA on the upside at $620, the market can turn bearish. It can crash back all the way to the 200 SMA breaking the support at $560. For this to happen there has to be a strong fundamental factor driving the prices down.

Short Term Trades:

On a daily chart, the Bollinger bands are narrowed out and expanding indicating an impending break out. Given the technical setup, a break out on the bullish side looks more feasible. There is a zone of heavy support around $600, with the middle Bolligner band, 9,13 and 34 SMAs supporting the prices. Good short term trades would be to take positions targeting the 100 SMA.

To get apt entry positions, let’s look into lower time frame:

On shorter time frame (4 Hrs), the setup is trending with parallel Bollinger bands indicating the trend. 34 SMA has been the line of constant support after the test of the support zone. Entering into short term trades at 34 SMA targeting higher Bollinger band can turn out to be profitable. With the setup being bullish, short term trades from the bearish side might be a risky affair.

While taking long term positions, factoring in the news pertaining to US movement for legislation and Fed announcements would be advisable.

Will a Trump presidency mean Triumph for Bitcoin?

One of the two contenders of the US Presidential race Donald J Trump is all set for the big day. With just over a month left, the republic nominee has been very entertaining throughout his campaign. While U.S.A. waits for the decisive day, let’s look into what Trump’s presidency would mean to cryptocurrency enthusiasts:

Trump’s Economic policies:

 

Source: Moody Analytics Report
Source: Moody’s Analytics Report

 

At a 2016 Republican convention, Trump declared that he was going to free U.S. from bad trade agreements.  He confirmed his anti-globalism position when he said:

“Americanism, not globalism will be our credo.”

He added that U.S. might pull back from NATO commitments which means U.S. would be walking away from the world. The effects of this could be similar to U.K. leaving the European Union. ‘Brexit’ had seen Bitcoin Prices soaring up with investors moving funds into the cryptocurrency. A similar event on part of U.S. might contribute to high prices and mainstream adoption.

A Trump presidency would put in place regulatory reforms on all industries. These reforms aim to remove “least critical regulations”.  For Fintech industries, these financial rules were instituted one or two centuries ago. This implies that the regulatory environment may, finally, become far more welcoming for Bitcoin and Blockchain Technology. This may allow U.S. to finally catch up with European countries in terms of Fintech regulations.

While individually few policies might seem positive, on a whole, Trumps economic policies might turn out to be fatal for the economy.

Trump against immigration:

 

Credits: COINTELEGRAPH

Stopping immigration has been the central theme of Trump’s campaign. He pledged to check immigration and remittances which followed his controversial speech about building a wall along the US-Mexico border. If these measures come into play, then people will start looking for alternative modes of remittance, which is Bitcoin.

If Trump really stands firm on his policies against immigration and remittance, Bitcoin transfers across borders will experience an uptick. This would lead to the development of a healthy Bitcoin ecosystem in U.S. and Mexico.

Trump’s Policies on China and the East:

 

2ba1e45200000578-0-image-a-14_1440444526371

 

Trump has vocally proclaimed many times during his campaign that the trade agreements with China will be renegotiated. He persuasively argues that we are currently in a trade war with the global economy resembling a zero-sum game. Nations are outright cheating by intentionally devaluing their currency, making exports cheaper at the expense of others. His economic plan aims to implement a non-zero sum system where trade benefits all. This is detrimental to the interests of Chinese as that would decrease their hold over their exports.

How any movement in Yuan has affected the Bitcoin prices is evident from recent devaluation policies by China. Implementation of the said policy by Trump would put China in a position of discomfort. They would initiate monetary strategies that would make Yuan sufficiently volatile. This would certainly see investments flowing into the Bitcoin market and the ecosystem would never be at equilibrium.

Hence Trump’s policies have an indirect bearing over Bitcoin and would push the currency in a positive light.