Is another cryptocurrency crash inevitable? The world, like other areas of the economy, seems to be going through an unprecedented recession. The restrictions that have been imposed to avoid it have led to an unprecedented decline in the world economy’s growth. Economic experts claim that the current state of the world economy is a sign of the start of the next recession.
Luckily, some measures that have been instituted to keep the economy stable have paid off.
The gold prices went down to an all-time low during this current crisis. As the world recovers from this recession, the price of Bitcoin went up to an all-time high, which shows how the currency has been performing the best in the world.
Despite this, many of the world economies are still experiencing huge losses, such as stocks, tourism, shopping malls, and much more. According to consulting firm Yale School of Management, the current state of the global economy is currently a stark reminder of 2008, when banks crashed and economies took a huge dip. It has been predicted that more pain is yet to come.
The Goldman Sachs Institute told a global conference in Davos in mid-January 2021 that “we were underestimating the future, by something like 200 percent.” The same sentiment also came from Moody’s Analytics in 2018, which estimated that a total global recession would occur by 2023. “This downturn, I guess will be worse than 2008,” says Phillip Kalin, a research associate at the research firm.
While any prediction is extremely risky, it is clear that a recession is not the end of the world. In fact, cryptocurrency’s remarkable growth has led to its unprecedented surge in popularity among investors. The cryptocurrency boom has triggered an unprecedented boom in the demand for bitcoin. This is partly because investors are looking for a safe, money-making vehicle that will last longer than other asset classes.
As a result, there are huge chances that it will continue to rise, and will inevitably crash due to its immense demand. If we are speaking about bitcoin, then we should probably look to a future that is similar to the Boom-Bust cycle of 2008. In 2008, the global financial crisis led to a severe fall in the economy, which caused the greatest financial crisis of the 20th century.
According to experts, the next global crisis could lead to a larger global depression than 2008 one. “It would be bad enough if it turned out that one or two major regions would face severe economic crisis, even if even two of those were the case,” explains Kalin. “But considering that if a global financial crisis comes about, we would likely end up with a situation in which large regions are likely to face severe economic crisis.”
Hopefully, this does not happen, and things will be different. On the other hand, the stability of the bitcoin supply means that its price is likely to remain high for a while. This price boom and speculation has already caused a number of incidents that are worth mentioning here.
According to the publication WAT, the three events that started the bitcoin boom are money, fixed exchange rates, and supply quantity. If we turn to the money supply, the entire world economy lost more than $12 trillion as a result of this vicious circle, according to research from the World Bank. The unexpected price boom led to unstable growth in the world economy. At the same time, the crisis caused the world to undergo massive depreciation of currencies, which resulted in a persistent recession in many countries.
Another factor, fixed exchange rates, was cited as another trigger of bitcoin’s phenomenal growth and demand, as buyers in the cryptocurrency market are willing to pay whatever amount of money it takes to acquire bitcoin. Thus, the price boom could only serve to make it an arbitrage opportunity for some traders.
In the end, the value of bitcoin is determined by several factors, including supply quantity, bitcoins’ value, and supply of food. This means that it is almost impossible to estimate the next rise or fall in bitcoin’s value due to the worldwide nature of the cryptocurrency. Because bitcoins are digital and hard to determine in terms of their number, competition has ensued among the largest digital currency miners. Instead of increasing bitcoin’s supply, one can hire miners to “mine” bitcoin, which means to have extra storage of bitcoin. The miners use special mechanisms to strengthen bitcoin’s digital infrastructure by adding millions of bitcoin daily to the ledger, in exchange for insurance, which guarantees a high bitcoin value.
As a result, miners became more and more interested in profit maximization, which pushed bitcoin’s prices towards $20,000. “Mining is the true driver for bitcoin’s current boom,” said Kalin. With interest in bitcoin being unstoppable and increasing prices each day, bitcoin is likely to dominate the world economy in the future.