Can the Cryptocurrency Industry Survive the Global Recession?
Can such volatile assets survive the current financial climate?
Cryptocurrencies are famously considered volatile financial assets. You might invest in a well-performing cryptocurrency today, but its price could skyrocket tomorrow or drop overnight.
Many top-rated cryptocurrencies have remained stable throughout the years, such as Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), and Solana (SOL). However, others, like Terra & Luna, have dropped to their untimely deaths and sparked a contagion of plummeting crypto prices.
Contagion in cryptocurrency refers to the large sums of money lost in panic-induced mass sell-offs. The entire crypto market has lost approximately $2 trillion in value after its November 2021 peak of $3 trillion. Which is a growing concern due to the unstable financial climate and global recession.
A recession occurs when a country’s economy declines for several months. It might involve a negative gross domestic product (GDP) in back-to-back quarters, increasing unemployment rates, and lower consumption of goods.
Interestingly, Bitcoin was created as a decentralized alternative to counter the 2008 recession. Therefore, Bitcoin, and all the other cryptocurrencies by extension, have never experienced a global recession.
In less than a year, Bitcoin has lost $900 billion in value, and that’s without getting into the altcoins that are dead, dying, or barely surviving. Ethereum also reached its lowest level since January 2021, falling below $900.
A large part of the crypto market’s value is tied up in both Bitcoin and Ethereum. So, if both of these plummet in price, so will the entire market. For example, since Ethereum is the primary cryptocurrency used by NFT projects and NFT marketplaces throughout Web3, this has caused many NFT projects to lose value and sparked mass sell-offs of popular NFT projects, such as Bored Ape Yacht Club.
Not only are crypto prices at an all-around low, but consumer sentiment regarding crypto as a safe investment asset is decreasing. Investors were wary of crypto due to its speculative nature and inherent volatility. However, they were willing to invest in stablecoins, and even some promising crypto projects such as Ethereum, to diversify their investment portfolios upon the advent of Web3 and decentralized economies.
Seeing some victims of the crypto meltdown lose their entire life savings or tens of thousands of dollars out of the blue is concerning for any investor. Investors want a return on investment, not bankruptcy.
As a result, most financial experts believe that 90% of cryptocurrencies won’t survive the incoming global recession. Their reasoning? They aren’t stable enough, tangible assets don’t back them up, their value isn’t tied to anything but empty promises, and the projects aren’t attractive enough to gather a following that can sustain them.
On the other hand, coins like Bitcoin, Ethereum, Solana, and Cardano are likely to survive the recession. They might not recover their November 2021 peak prices, but they’ll most likely thrive when a bullish crypto trend rolls.