Will U.S. Recession Hurt BITCOIN?

infidel1258(68)

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Today we will discuss the historic data on gold, silver, USA GDP & the Fed Funds rate, in order that we might explore how economic down turn impacts limited supply assets. From this data we hope to infer something meaningful about bitcoin's price movements to come, during the next economic crisis.

If essays are not your thing, check out my video where I summarize my views on this topic. Click here!

My Thesis Statement:

It is my contention that gold, silver AND bitcoin are hedges against fiat failure (ie., hyperinflation), in that they are limited supply assets, and that therefore we can expect all three to thrive during a coming crisis.

Data Analysis:

In the data I collected I think we see three important facts, and they are as follows:

Gold & Silver are positively correlated, when one goes up, the other follows.
GDP & the Dow Jones are positively correlated.
Bullion price is NEGATIVELY correlated with GDP & the Dow: When GDP is up, bullion is down.

Bullion, GDP & the Dow Jones:

Will the coming recession kill Bitcoin?

In order to answer this question, I need to address three things first:

Justify my assertion that an economic collapse is coming.
Explain why I believe that crisis will be the worse one ever.
Successfully justify why the worst economic crisis ever will be good for bitcoin (& gold & silver).

Economic Crisis is Coming:

First of all, we need to discuss my justifications for why an economic downturn is coming:

The USA is currently in the middle of its longest bull market ever. See data here...
In 2008 the US government intervened through QE, which stopped the natural market cycle, and artificially re-inflated the economy: This is not sustainable because:

The Fed Funds rate is near all-time lows, already. Nowhere to go but negative.
US Debt is rising exponentially now.
"Coin clipping" (aka, QE & Fractional lending) necessarily debase the intrinsic value of currency, and lead to hyperinflation.

What goes up, must come down.

So, knowing all this, we can hopefully agree a downturn is coming. I think the only remaining question is whether the coming crisis is going to like 2008, or if it will be worse, and I think given all the data our expectations should lean toward MUCH WORSE.

Last time the banks were broke and failing, and they were only saved because the government bailed them out. This time the failure is not on the corporate level, it’s on the governmental level.

The coming crisis will be worse than any before...

In 2008 we saw Lehman brothers sink, next time around we will see sovereign countries declare bankruptcy. The US may be one of those to collapse, as they try to print themselves out of debt, as Greenspan said in 2011 on NBC's Meet the Press.

"The United States can pay ANY debt... we can always print money."

"Print to Save" will Fail:
The problem with the print money to save the country is that it is a short-sighted solution. While Greenspan is technically correct, in that you can issue any number of dollars to satisfy a dollar debt by printing more, this approach has unfortunate ramifications. Unfortunately, in the process of printing fiat to save the US, it will kill their own currency, by burning up all the faith placed upon it.

No government, nor currency, can survive once it has burnt all the faith placed upon it.

So, will the coming crisis KILL Bitcoin?

No neither economic recession, nor depression or even collapse will kill bitcoin, in fact quite the opposite.

We must understand that gold and silver are valuable because people trust them as a hedge against fiat failure, and because they have limited supplies, and bitcoin also shares these properties. So then, how does bullion react in an economic crisis?

Gold and silver, during an economic depression, or currency collapse have proven themselves as secure and stable, in fact they typically benefit during times of political or economic uncertainty. In fact, the historic evidence indicates people panic to get into these save havens, not out of them. And it is my belief that bitcoin will benefit from that same process, as people flee the insecurity of hyperinflation into the relative security of limited supply assets like bullion & crypto.

Look at the data for gold & silver before, during & after the 2008 crisis: bullion thrives when the economy is collapsing. bullion prices only began to fall from their all-time highs after several consecutive years of GDP growth (2010 - 2012), and I believe we can rely on this data to glean relative expectations for bitcoin also.

Gold, Silver before, during & after the Great Recession:

When the economy is retracting, meaning GDP growth is poor, bullion prices soar, and though bitcoin didn't exist in 2008 I believe we can expect the same price action to benefit cryptocurrency. Why? Because bitcoin, gold and silver share the properties of "good money":

Divisible
Durable
Fungible
Portable
Resistant to counterfeit

And they each are limited in supply, cost something to create, and are decentralized, meaning that no government or single entity controls or holds them all.

Counter Argument:

There are a few factors that I have not considered that people raise when asking how a crisis will impact bitcoin's price, quickly:

People will sell bitcoin to pay their bills,
People will not trust bitcoin, they will buy bullion instead.
Cryptocurrency is too complicated, people can't or won't bother with it.

Let's address each now:

People will sell their bitcoin during economic down-turn, and so bitcoin price will fall during a major crisis.

I disagree because every day more people learn about BTC, and we are already getting to the point where you can exchange it directly for goods and services, this will rapidly increase during economic collapse as merchants seek more reliable payment methods.

People will buy bullion instead of crypto.

This makes a lot of sense at first, but the problem with that argument is the bottleneck that occurs. There simply is not enough physical bullion available for everyone. There is only 1/10th of an troy oz, per person on the planet, so how exactly are we supposed to flee into that? Some will, most won't be able to.

Cryptocurrency is too complicated: this one deserves more in-depth discussion.

Crypto is too complicated:

It’s difficult to move silver and gold, not so for bitcoin. Sure, private keys can be confusing, and for now many people can't be bothered to learn but given the proper leverage they will move. And as the global economy begins to collapse, because the US dollar which backs it, hyperinflates, we will see people take the time to learn how to buy, hold and store cryptocurrency.

They will make time because their desperation to flee fiat will be that necessary leverage, they currently lack.

Picture your income cut in half, every 30 days... that is hyperinflation.

When the US dollar inflates more than 50% in one month, people will do everything they can to spend EVERY penny. They will flood into silver and gold, but as that bottleneck proves inadequate, people will pour over into the cryptocurrency space.

Desperation will force their hands.

Conclusion:

So, no I don't think the coming recession will kill bitcoin. Nor do I think the US dollar collapse can kill bitcoin.

In fact, I think fiat failure is the main reason why people should own crypto. I believe that this truth, though lost on some people today, will become widely apparent when a jug of milk goes from $5 one month, to $7.50 the next, and $11.25 four weeks after that. Furthermore, this fiat failure is closer than anyone believes.

Bitcoin is not dead, it is not dying, it cannot be killed by governments, nor hackers. It is the future of commerce, and while I love bullion, bitcoin is here to stay, and I believe every human reading this should own at least some silver, gold AND Bitcoin.