Many experts claim Bitcoin (BTC) could be a digital safe haven for investors during a recession, one that is looming, if one is to believe the inverted US Treasury Yield Curve.
Did BTC bulls predicting the coin at $100k and $1million prices calculate a recession-led buying spree of the digital currency leader?
Likely not. They based it on the law of scarcity and a global financial system moving towards digital transformation, eventually doing away with centralized banking.
But why is the BTC not acting like Gold during these uncertain economic times, with trade wars, oil tanker warfare, and potential escalation of security matters around the Straits of Hormuz and associated disruption to oil exports?
Is a recession coming?
The Yield Curve—which measures the spread on U.S. Treasury obligations— inverted on Friday, meaning that ten-year bonds now pay lower interest than the three-month note.
The inversion made the front page of the Wall Street Journal and sent stocks plummeting. The Dow Jones Industrial Average fell by 1.8% and the S&P 500 by 1.9%.
Every recession since the 1970s has been preceded by an inverted yield curve.
The time between inversion and recession varies, but the gap is typically between nine months and two years.
How has Bitcoin performed lately?
More than $30bn has been wiped from the market since Tuesday, and Bitcoin plummeted by nearly $1,500.
It is trading in the $10,000 range at time of writing.
Despite this, Bitcoin’s rally fizzled out in late-June and the cryptocurrency has been facing increased selling pressure in the time since, which has led many analysts and investors to grow increasingly bearish on BTC in the near-term.
Why aren’t investors flocking to buy BTC?
Bitcoin can be a hedge against overreaching governments, hyperinflation, and capital controls because of its inherent decentralized, scarce, nature.
But since the yield curve inversion, crypto’s price fell.
Igor Chugunov, CEO and Founder at Credits Blockchain, said the Chinese found the crypto to be a safe haven but are starting to leave as trade tensions have eased and pressure on the yuan has stopped. According to CNBC, Chinese officials hope to “meet the U.S. halfway” on trade issues.
Also, in a typical recession, or during a downturn, investors flock to Treasury bonds, Gold and the Japanese yen.
When investors become more risk-averse, it could spell bad news for crypto market caps which are highly volatile.
Could this change?
Gabor Gurbacs, the director and digital asset strategist at VanEck, explained in a recent tweet that 27% of the bonds in the world offer investors a negative interest rate, which may elucidate the fact that a paradigm shift towards Bitcoin is needed.
“According to Deutsche Bank, 27% of bonds in the world trade at a negative interest rate with a total market value of ~$15 trillion or 75x #bitcoin’s market cap. It’s time for Plan ₿!”