Bitcoin And Financial Crisis: Can It Weather The Storm?
With the global economy hanging on by a thread these days, there are many investors seeking a safe haven. Where can they protect their cash in times of trouble?
With the rise of cryptocurrency over the past decade, it has caught the attention of many people looking for just such a solution. Unless you are a die-hard devotee of crypto, then you may not really know if investing in it is a prudent financial move.
The very decentralized nature of Bitcoin and other cryptocurrency can be a double edged sword. Since it lacks any real oversight, it could be risky. At the same time, it may also offer an immunity to normal market forces including a full-blown crisis.
In this article, we will take a closer look at some things to consider before you park your money in Bitcoin.
A matter of faith
Though fiat currency has the backing of large financial institutions and nations behind it, there is still the fact that the value relies on faith in the currency.
Since there are many different currencies available in the world, when faith starts eroding on the buying power and value of one, another can be bought to protect your money.
Bitcoin is pretty much in the same boat. For some reason, there is more of an emphasis placed on the nature of trust in Bitcoin as opposed to fiat currency. The interesting thing to note is that the blockchain gives more security than some fiat currencies as the register is immutable. The same cannot be said for the dollar or pound or any other currency.
Once you buy your crypto from a Bitcoin marketplace, every transaction you make is registered and verified on the blockchain and can’t be changed. That gives more of a sense of security.
There are many examples in history, including recently, when a crisis shakes the foundations of a currency and a government has to step in and close the banks temporarily to stop the bleeding and avoid a crash.
That works great for the overall economy, but if you need to access your cash, then there is no chance. When you have Bitcoin, the trading never ceases. For good or ill.
Just a few years ago, the Greeks were in a situation where they had to close banks for a week to keep the economy from crashing. Also recently, Bitcoin has had a huge crash that erased profits almost overnight. But, the difference is that a Bitcoin holder could cash out at any time during this crash.
Though this is good for some individuals, it does lead to volatility within the cryptocurrency space. And volatility is not a good thing when you are trying to protect your assets.
There is certainly a case that can be made that your money may be better off in Bitcoin than fiat during a crisis, but like anything, there is no guarantee. It is hard to predict something like Bitcoin, but when the world’s stock markets are crashing and there are not many options, then it is something to look into.