A Debt-Fuelled Economic Crisis & Bitcoin: What to Expect?

With so many bubbles blown by the Federal Reserve, “something will burst soon.”
BTC could become a genuine safe haven if some conditions were met.
After a possible selloff, people will run back towards bitcoin after any crisis has run its course.

It’s hard to shake the fact that bitcoin (BTC)’s ascent from one fresh all-time high to another in recent months has taken place amid a backdrop of a struggling global economy. The United States’ GDP infamously tanked by a record 32.9% in Q2 2020 and fell by 3.5% across 2020 as a whole, while the International Monetary Fund (IMF) projected in June that the global economy would shrink by nearly 5% across the same period.

These are somber figures, yet some economists are suggesting that things could get even worse. Economists at the IMF recently warned that public and private debt — which were already rising in 2019 — could reach tipping point as a result of the COVID-19 pandemic, crippling the global economy to the point where it can’t properly recover.

Meanwhile, the US might approve their new USD 1.9trn coronavirus relief package in the coming days.

Economists and analysts speaking to Cryptonews.com largely agree with this assessment, even if they disagree on the timeline involved in any debt- and coronavirus-fuelled economic crisis. And while some suggest that commodities such as gold and silver may benefit from any acute crisis, others claim that the bitcoin and cryptoasset markets will suffer, as people and businesses rush for liquidity (i.e. cash), as we already saw during a major market crash in March 2020.

Bitcoin (Image: Antana/CCBY-SA2)
Bitcoin (Image: Antana/CCBY-SA2)

Probabilities, not certainties
Most economic and financial experts appear to agree that some kind of debt-driven slump is approaching, although they tend to disagree on whether this is an inevitability or not.

“I think the crisis is inevitable and coming in the next [few] years,” said Michaël van de Poppe, a cryptocurrency trader and analyst.

“Overall private and public debt are going through the ceiling, while real estate and equity markets are accelerating fast and people are jumping around in euphoric emotions thinking that it will only go up even more. But, then the [US Treasury] yields are crawling upwards,” he added.

Yields on 10-year US Treasury bonds, which is considered to be a safe investment, revisited its one-year high of 1.6% this week, while Goldman Sachs estimates it might hit 1.9% this year as they “believe strong economic data will lead yields to resume their upward trajectory in the coming quarters.”

However, Société Genérale’s Albert Edwards wrote in a note, “the risk is growing that with so many bubbles blown by the [Federal Reserve] something will burst soon.”

However, for economist and author Peter Earle of the American Institute for Economic Research (AIER), a looming debt- and spending-fuelled crisis isn’t completely unavoidable.

“In every moment economic, financial market, and social circumstances change, and thus the likelihood of a downturn changes. Even if all the economic ‘stars’ were aligned in a way that made a crisis, recession, or depression likely within a few months – whatever that means – a single Treasury policy change, Federal Reserve program, or some other influence could and probably would radically change the predicted scenario,” he told Cryptonews.com.

That said, Earle acknowledges that the US and wider international economy is exhibiting many disconcerting signs.

“The huge expansion of the US money supply in March and April of 2020 has had a highly stimulative effect in financial and asset prices […] There’s also an uncomfortable persistence in unemployment rates owing to the lockdowns. So clearly the economy is very hot in some ways and lukewarm in others,” he added.

Read more: cryptonews

Kraken CEO Jesse Powell On Why Bitcoin Price Could Reach $1 Million

Bitcoin has sparkled so far this year. The price of the digital coin is currently experiencing a price pull back at the $50K level and that speaks volumes about its performance. Many opinions are flying around the crypto space regarding Bitcoin’s next step as its impressive journey isn’t looking to stop any time soon.

Bitcoin has also seen a new wave of institutional influx as traditional financial institutions have taken more than a sudden interest in the cryptocurrency as the somewhat endless glow around the coin continues to shine.

Jesse Powell, Kraken CEO and co-founder has now stated that he believes the price of Bitcoin is “going to infinity. Mr. Powell made the comment when asked by reporters what his expectations were regarding Bitcoin.

According to Powell, Bitcoin fanatics firmly affirm that Bitcoin is going to be the world’s top currency. He added that Bitcoin’s market cap could basically equal that of the dollar as well as the euro or both of them combined.

“Of course you know we can only speculate. But when you measure it in terms of dollars you have to think it’s [Bitcoin] going to infinity,” Powell said. “And I think the true believers will tell you that it’s going all the way to the moon, to Mars, and eventually it would be the world’s currency,”

Powell also stated that Bitcoin has a very moderate chance to hit $1 million in the next 10 years, citing the rate at which the U.S. Government continues to print money as a major factor in Bitcoin’s quest to reach infinite numbers.

“I think people are increasingly looking to Bitcoin as a safe haven asset. They see it as a better version of gold, and something to protect them against all of this inflation that’s happening.”

The notion of Bitcoin being a safe haven asset had been solidified even more this year after multi-billion dollar financial corporations have labeled Bitcoin a hedge against market variations.

Powell tipped the presence of the young generation in the current crypto space as a factor that will help propel the digital coin to greater heights. The CEO of Kraken also made news back in December 2020 when he labeled the U.S fiat currency, as a “risky prospect” compared to BTC when in possession.

Read more: ZyCrypto