New Financial Crisis & Safe Haven

According to the most popular financial sources, many famous economists and financial experts, it's expected a new financial crisis in 2019-2021.

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NEW GREAT RECESSION

The World Could Face a New Global Crash

in 2019-2021

According to the most popular financial sources, many famous economists and financial experts, in 2020-2021 it is expected a new financial crisis that will be similar to the 2008-2009 Great Recession, but it is expected to be less damaging.

2019-2021 financial crisis

About the possible crisis warn popular sources such as The Wall Street Journal, Business Insider, Forbes, Independent. JPMorgan also predicts that the next financial crisis will strike in 2020.

Gloomy forecasters worry about global economic stability due to the rising debt levels and slowing GDP growth.

Factors Indicating the Upcoming Financial Crisis

Even though some analysts dispute these talks, underlining that these predictions ignore the recent years major economies tend to start the year slowly before getting into gear later on. However, starting from 2014, the three years were marked by falling prices of oil and commodity, which moderated inflation, giving a boost to the global economy.

In the graph below, is shown the fall of the oil price in 3 years, starting from 2014. However, from 2017, it has started to increase in value and even if in the beginning of the 2019 it had an obvious drop in price, it has an intention to keep increasing, with this creates favorable conditions for inflation.

In 2017, the growth faded and the 2018 was unspectacular, besides the US, where tax cuts compensated the global trade and raised a consumption boom. In 2019 things look very different. In many countries consumer debt has risen, corporate borrowing has soared and governments, while they have reduced annual deficits, still sit on mountains of debt.

INFOBLOCK

Even if a Financial Crisis is expected, how can it impact the Bitcoin price and the crypto market growth?

Bitcoin was created during the 2008 Great Recession also to fight against it. Thus, it can serve as a kind of safe haven assets during the crisis.

 

During the financial crisis, most investments market values fall and many investors consider buying safe haven assets that are uncorrelated or negatively correlated to the general market during the crisis as they try to protect their funds, assets by placing them on safe places, like 10
year Treasury bonds, gold, Swiss franc, Japanese Yen, and now also in cryptocurrencies.

 

As a result, lots of people start buying Bitcoin, the number of people having the desire to purchase Bitcoin grows increasing the Bitcoin price.

NEW SAFE HAVEN ASSET

Safe Haven

A safe haven investment diversifies an investor’s portfolio and is beneficial in times of market volatility and during such events in the market are unavoidable, some investors look to buy safe haven assets that are uncorrelated or negatively correlated to the general market during times of distress. While most assets are falling in value, safe havens either retain or increase in value.

In other words, investors have to protect their funds, assets by placing them on safe places like 10-year Treasury bills, gold, Swiss franc, Japanese Yen.

Today, we have another safe haven asset, called Bitcoin. Bitcoin was created during the Great Recession, in 2008, to fight against centralized financial system and the reason of financial crises - inflation. The biggest 2 economic crises in history - the Great Depression and the Great Recession have started from the surplus of the cash in circulation.
In both cases, Federal Reserve System was printing and distributing as much money as they wanted. For banks, this made much easier to give credits, and as there was an increased supply of credit, they tried to offer more favorable conditions than their competitors in order to get more clients.

As a result, in 1929 the Wall Street crashed, as lots of people were taking credits in order to buy different stocks, which resulted in price decreases in the stock market. In 2008, the mortgage market crashed, as people started to use mortgages in vast amounts.

With Bitcoin, to avoid inflation and devaluation of money, the creator of it - Satoshi Nakamoto defined that there will be mined only 21 000 000 Bitcoins. This means, Bitcoin cannot lead to inflation, on the contrary, it is created to avoid the inflation and fight against possible financial crises. So that, it is considered as a hedge against crisis, like gold.

Today, the market is experiencing the birth of a new safe haven asset that is called “Bitcoin”. You may say, bitcoin cannot be a safe haven asset because the correlation between stocks and bitcoin is not any close to -50%. Thus, in that case, considering Bitcoin as a safe haven asset cannot be accepted. However, things are going to change soon, as bitcoin is a digital asset, which is already accepted and legalized by several countries, and one of them is G7 country - Japan.

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Entire Money of the World

Simply take a look at how much money there is in the world and how much capital flow goes out from stocks to safe haven assets. By only having 1% of the capital flow in bitcoin, during the crisis, bitcoin value can reach $93.600!

In the picture, you can see entire money of the World and Markets in One Visualization by visualcapitalist.com

Every Point represents 100 Billion USD!

money-of-the-world.png

THE PREDICTED CAPITALIZATION OF THE CRYPTO MARKET

If only 1% of the capital flows into the crypto market during the crisis, the total crypto market is expected to reach $3,809 trillion. Now, imagine what could happen if instead of 1% goes 3%, 5% or even 10% to crypto market...

Still have doubts or questions?

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