Bitcoin, Recession-Proof?

THE RECESSION IS COMING AHHHHHH! WHAT ABOUT MY ASSETS!? MY HOUSE!? MY CAR!? MY MORTGAGE!? MY CAREER!? Hold on. Hold on. There has been a lot of talk about a global recession lately. This was started when Warren Buffet had sold around $300 Billion USD worth of stock by the end of June. This led July to be filled with “Doomsday” and “Recession” talks. Since then, he has sold more than $350 billion USD in stocks (in total) in August. That bummed me out about the global economy. I know it did for you, too.

What made it worse? In late July, upon seeing the global stock market's biggest companies stocks crash, we saw CEOs show fear. No response was worse than Patrick Gelsinger, CEO of Intel; his reaction was the worst. What did he do? Swear? Lie? Shame the investors? No, it was much worse. He publicly prayed on social media.

The tweet above is just one example of the prayers he put out. He put out many. This was as Intel stock was suddenly and deeply crashing. This understandably got many worried about the global tech sector and the global economy in general. Through this all, the only community excited by the seemingly looming recession is who? CRYPTO-BROS. Very specifically, Bitcoin bros, Bitcoin-bros were practically ecstatic at the news….why? Bitcoin, albeit affected by the stock crashes, maybe the most valuable asset for retaining and growing wealth even during a recession.

Side note: Pat Gelsinger once doubted Bitcoin’s efficacy as a reliable financial asset. This might change his mind.

Bitcoin, A Financial Asset?

As we talk about Bitcoin, let’s list what makes Bitcoin unique. Not only that but let’s also analyze how this goes hand in hand with recession resistability and economic viability. So, what makes Bitcoin, Bitcoin?

• Decentralization: No central authority over the network.
• Peer-to-Peer Network: Transactions occur directly between users, with no space for intermediaries.
• Digital Scarcity: A finite supply of Bitcoins. 21 million Bitcoins to be exact.
• Public Ledger: All transactions are recorded on Bitcoins public blockchain.
• Cryptography: Cryptography security is enhanced through its decentralization.
• Proof-of-Work: Miners verify transactions.

Let’s briefly go one by one and evaluate whether these features add to an item to make it a financial asset.

• Decentralization: De-regulation from companies means societal valuations maintain value. No image scarring can occur on Bitcoin.
• Peer-to-Peer Network: You get to keep as much of your money as possible. Arguably, even more than Banks let you.
• Digital Scarcity: Value increases even during the recession as finite supply continues to get smaller.
• Public Ledger: Chances of Fraud occurring are greatly reduced to nullified.
• Cryptography: Bitcoin is more secure than any traditional or other traditional assets.
• Proof-of-Work: Proof of the Bitcoin asset's viability as it was physical computational processing that made the digital token.

I would say the features above do make Bitcoin valuable as an asset. The key value givers are Decentralization, Digital Scarcity, Public Ledger, and the PoW concept. Is this really true? Do people see Bitcoin the same way? Seemingly they do:

The graph above is from statista.com. In it, we see that during this year, Bitcoin reached its peak price of $72,000 USD in March of 2024. Now as of August 5th, 2024, Bitcoin is now at $53,000 USD. Some may see this and exclaim, “What a drop!” is it really? Look at the chart above. Even if Bitcoin is $53,000 USD per Bitcoin, it is still higher than it was in the past by a wide margin in the last 4-5 years. Before these 5 years? Bitcoin was still dropping, rising and dropping, then rising. However, it always rose more than it dropped by a disproportionate level. This directly implies that even during hard recessions or financial blowback, Bitcoin somehow, over time, is still an economic asset rather than a liability.

With that being said, what assets generally do well to storm a recession? The answer is none, really……except maybe….Banking based assets. When a recession comes, banks are the first to collapse and fail, with tremendous consequences to be seen cough cough Great Depression of 1930 cough cough. However, banks are also the first sign that a recession is receding and good times are ahead. Banks generally have the highest “bounce-back” after financial crashes and even during financial stagnation periods.

THIS MATTERS A LOT. Why? Banks are constantly warning users about Bitcoin and other cryptocurrencies. Why? BITCOIN AND CRYPTO CHALLENGE TRADITIONAL BANKS. Cryptos are literally decentralized banking systems with high volatility (albeit generally positive). As they are direct competitors to banks, they are bank equivalents. Thus, Bitcoin counts as a banking type of asset. Thus, it is also as effective as banking assets.

Bitcoins are a type of banking asset. This definitely convinces people to get on the Bitcoin hype train. However, you don’t need to be a full Bitcoin lover to get the benefits. What if this isn’t enough? Maybe Bitcoin needs more functional attributes to show its usefulness more and make it a more viable investment……SIDE CHAINS!

To be brief, Side Chains are essentially separate blockchains (by companies or organizations) that attach themselves to that cryptocurrency blockchain. Side chains exist to add even more security to transactions, lessen congestion on the chain, and even add the preferred functionality of a company or organization to that cryptosystem.

Examples of side chains are Rootstock, Liquid Network, and Polygon. (Worth noting, Rootstock is Bitcoins oldest sidechain and has Ethereum-esque utilities).

What does all that mean? This means that through side chains like Polygon and Rootstock, you can add extra usage to Bitcoin as a functional asset. So, similar to gold coins, Bitcoins can be used to gain more value. Sidechains add more to that value, giving a higher incentive to treat them as a banking asset.

Overall, Bitcoin is firmly NOT RECESSION PROOF. However, Bitcoin is certainly more recession-resistant than other assets. Tied only with traditional bank stocks in terms of financial growth through a recession. So if you’re wondering how to reduce your losses during this economic downturn and uplift yourself in the next few years through stocks, well then, an investment in Bitcoin isn’t just an interesting idea; it could be a good one.