Will the next economic crisis be the end of cryptocurrencies and blockchain or their consolidation?
Blockchain is the new technology hype, most people interested in technologies have heard of it, and a lot of other people have heard or read about it in the news, mostly because of its huge price increases in 2017. Since the beginning of 2018 though, the general interest in this technology has gone down significantly, according to the Google Trends graphs below, where we see the peak interest was in December 2017. A lot of people might be asking if this is the end of cryptocurrencies and blockchain? And most importantly, specially for investors, can blockchain and cryptocurrencies survive the next economic crisis?
As we can see in the graphs above, the number of searches for “Bitcoin” and “Blockchain” follow a similar pattern. In the past few months, the number of searches has decreased drastically, probably given to the drop in the Bitcoin price, from $20,000 in December 2017 to, as of writing this article, $6,400. But one important doubt I have had in my mind since last year is if blockchain could survive a financial crisis. Given that the blockchain technology and interest started growing only in 2010, also at the same time the American economy was coming back from the recession, as well as other countries, it has only seen times of financial growth in the market as a whole. I understand that currently there are a lot of countries in huge financial holes, Spain, Italy and Greece are some examples, but we can say that the world is financially more stable now than in 2007/2008. And by world I mean the United States. But this is the case, because the U.S. is the largest financial market in the world, and anytime it coughs, the whole world catches a flu.
History repeats itself
If you search on Google for the next financial crisis, you will see a lot of articles talking about what could possibly be the next bubble or when will it happen. But one thing is certain, it WILL happen, we just do not know when or where it will start. There are a lot of indicators that show we are getting closer to the next crisis, one of them is the amount of financial regulation. In his paper about this topic (Regulatory Cycles: Revisiting the Political Economy of Financial Crises), Jihad Dagher talks about how economic crises happen when financial regulations are very lenient with banks, and that these same regulations are very strict right after crises. This is important, because we have entered this stage of more leniency towards financial institutions. Donald Trump signed recently a rollback of bank regulations which were put in place after the Great Recession. So as the title says, history is probably about to repeat itself one more time and go into a recession within the next few years.
The next crisis will be the Cryptocurrency bubble
I have read a lot of articles talking about the Cryptocurrency bubble, and how it might destroy the world’s economies. The price of Bitcoin went from under $1,000 to almost $20,000 in less than a year. That is not sustainable, but now prices have come down below $7,000 and seem to be a bit more stable, despite recent drops. And because Bitcoin was the first of its kind, it still has a lot of influence on the price of all other coins. However, I am on the edge of the fence on this topic, because I can definitely see how a Crypto bubble could be devastating. But I also believe it could be a safe place during an economic crisis.
I personally believe prices will raise once again and reach high levels one more time. My only concern is the timing of this event. Because, lets imagine Bitcoin reaches a $30,000 price, and expectedly most of the other cryptocurrencies will also be at all-time highs, but at the same time, there are other financial instruments on the brink of collapse. If the price of Bitcoin slowly increases over time and reaches this price, then investors will be more confident to invest on it in case other financial instruments are going down. But if the price has a dramatic increase like in 2017, then investors might pull all of the money out of the crypto market and collapse it even further than expected. So if the latter is the case, then it will be really hard for most cryptocurrencies to come back, however if all prices increase steadily, it could show investors how cryptos are here to stay.
A crypto bubble could potentially end most coins (I believe blockchain is the next big thing, just don’t know if every coin might survive), specially because a lot of them are just speculations with no working products. And if the public’s trust is hurt because of a bubble, it will be hard to convince people to invest back in the technology.
However, if the crypto market shows investors that it is solid and a great investment, than a bubble in another financial instrument would only make cryptos stronger and more reliable.
More on economic crises’ cycles
Did these short paragraphs about crises catch your attention? Here is a topic I really like and I think everyone should at least read a little about. It is about charts’ Technical Analysis (TA). If you believe TA does not work or is useless, search on Google “Gann Cycles”. Long story short, this guy, William Delbert Gann, was a finance trader in the late 1800s and early 1900s and he created a variety of different TA methods, one of them being the Gann Cycles. It describes how financial markets’ up and downs follow periodic cycles that can be estimated. Without getting into a lot of detail, the cycles show that between 2019 and 2022, there might be a big recession, possibly worse than the last one. Let me know in the comments what you think about it.
**Disclaimer: I am NOT a financial advisor and this should NOT be taken financial advice. You should ALWAYS do your own research before investing. The information in this article reflects only my PERSONAL opinion.
**For more crypto-related information, check out my YouTube channel: https://www.youtube.com/channel/UCR7DmzG8UULUuYLLIU7FhLw?view_as=subscriber
Will the next economic crisis be the end of cryptocurrencies and blockchain or their consolidation? was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.