Case for cryptos during a global recession

As we reach the middle of May, it's clear that the global economy is in a recession. In fact, the IMF recently made it official that "we have entered a recession as bad or worse than in 2009". The organization also predicted a recovery in 2021, but for the time being, we can likely expect job markets, stock exchanges, and major currencies to go through prolonged, or at least intermittent struggles.

One interesting development as the world's largest and most influential economies have struggled, however, has been the strong performance of cryptocurrencies. Analysts and investors have wondered for years if bitcoin and its ilk might surge if and when a widespread recession hit more traditional currencies and assets. It wouldn't be accurate as of this writing to say that they have done exactly that; by any reasonable measure, there has been no "surge" to date. Cryptocurrencies have managed to perform quite well though, at least in contrast to other financial markets if we exclude gold and US Treasuries.

It hasn't been just bitcoin either. While the leading cryptocurrency did enjoy a strong spring (and lead some prognosticators to predict a lucrative 2020 ahead), the truth is that most significant cryptocurrencies have performed well of late. An index designed to measure the performance of the top 10 cryptos in the broader crypto market has shown a gradual but clear uptick from the second week of March until now. It should be noted that the uptick started after a brief volatile week that impacted all asset markets and not just cryptos. The involved cryptos include the likes of bitcoin, ethereum, litecoin, and more, and the index also reveals that roughly nine in 10 traders are currently interested in buying these assets rather than selling them. This indicates strong performance across the board for cryptos, even as world economies suffer.

Now, we should acknowledge that these trends may be partly due to the bitcoin halving event taking place this week. A halving is a periodical event whereby the amount of bitcoin generated by the cryptocurrency mining process is cut by 50%. In this specific instance, a mined "block" of bitcoin is being reduced from a value of 12.5 bitcoins to just 6.25 bitcoins. And in the past, when bitcoin has experienced its halving events, the market has jumped up in the aftermath.

It is, therefore, possible that a number of investors have been buying up bitcoin in the hopes of capitalizing on the halving. This would have driven the price of bitcoin up, and as is often the case, other cryptos would have roughly followed the same pattern. As much as the halving has almost undoubtedly played a role in bitcoin's strength of late though, the interesting fact remains: Cryptocurrencies could arguably hold their ground and then some, even in the midst of a global recession.

(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)