Is Bitcoin going to be the best hedge in the upcoming financial crisis?

magneto

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Quote from: truehedge on December 15, 2018, 04:06:10 AM

Hi Everyone,

There has been something on my mind for last couple of weeks and that is:

Is Bitcoin going to be the best hedge in the upcoming financial crisis?

Let's assume for a while that the financial crisis will break wide open in either late 2019 or at latest early 2020 - we live in everything bubble era.

What do you believe will be the ultimate hedge and why do you think that?

In 2008 crisis it was US treasuries and gold as it rose sharply in 2009, 2010 up to 2011 I don't think that would be the case this time as the mobility matters more and more.
I can't speak for US treasuries as I don't understand them that much let alone understand why would anyone invest in anything that does not even cover (real) inflation which in my opinion is about 7 - 10 % per year depending on where you live and things you buy.

In my opinion it will be Bitcoin (BTC) as it's the oldest, largest crypto with the largest hashing power behind it.

I would appreciate your comments and opinions.

Edit 17/12/2018: As some people thought I'm looking for an instrument that will not take ANY loss - that's not the case here - I'm looking at an instrument that will not stay down for say longer than 3 months.

Edit 19/12/2018: This assumption/planning/thought is for rich people - people who can barely afford food and just got laid off will not invest in anything (maybe lottery tickets if they want to call it investing).

I wouldn't say that bitcoin is guaranteed to not stay down for more than 3 months.

However, if you look at it from the perspective of whether people would want to be in an asset class which is decentralised and people know is a good store of value and isn't manipulated by any central entities, or rather assets that have ties to the traditional economy within a financial crisis, I think that most people would want to hold the former.

It's the reason why precious metals have performed well in times of financial crises around the world. Bitcoin can serve a similar role here.

Is it going to be the best hedge? It's hard to say, but it will be a hedge against any upcoming financial crisis in my opinion. It's certainly going to be comfortably outperforming assets like shares, or potentially even fiat cash itself.

1Referee

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Quote from: Febo on December 24, 2018, 03:35:55 PM

All that economic crisis will do is to postpond the Bitcoin cycle for a year and after that bull market will be only stronger.

It's impossible to know. It could steer this market to record highs, or have it suffer with it, but one thing is sure, continue to buy whenever you can now the prices look reasonably fair. Regardless of the economical circumstances we'll be going through, Bitcoin itself will only become stronger.

The coming few years will be Bitcoin's best years in terms of technological progress. We have some killer upgrades waiting to be released and Lightning continues to grow as well. I'm more bullish on Bitcoin than ever before. Eventually, the price will move far ahead of the actual utility in form of the next bull run. It's only a matter of time.

The only thing you can do is make sure you hold enough coins before it starts. Buy.

Yamifoud

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Bitcoin will regain its market value when people and investors will put back their money. It actually bitcoin never be a solution for the possible crisis and we can't depend on bitcoin cause once financial crisis arrive it also affect into its market value(going down also).

Febo

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Quote from: figmentofmyass on December 22, 2018, 08:44:20 PM

Quote from: wuvdoll on December 22, 2018, 09:28:17 AM

Financial crisis is here and bitcoin has not skyroceted yet. American stocks are incredibly low, they have fallen as much as they did back in 2008

not even close! in the 2008 crash, the s&p 500 index fell ~56%. the current drop (from the ATH earlier in the year) only amounts to a 17% decline. it's been a rough few months, but nothing compared to 2008 yet.

Yup. I dont get how so many already call we have economic crysis.

It has to happen and so far I hoped it would happen after next Bitcoin bubble. But right now I dont care anymore. All that economic crisis will do is to postpond the Bitcoin cycle for a year and after that bull market will be only stronger.

arpon11

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Bitcoin maybe used as hedge during financial crisis as most of the currencies especially the major one can be sweep during the crisis. Bitcoin did not much depends on inflation figure and others financial issues and that put it in the best position to become investments window during financial crisis. Remember that bitcoin is transparent, decentralised and it is highly reliable.

figmentofmyass

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Quote from: wuvdoll on December 22, 2018, 09:28:17 AM

Financial crisis is here and bitcoin has not skyroceted yet. American stocks are incredibly low, they have fallen as much as they did back in 2008

not even close! in the 2008 crash, the s&p 500 index fell ~56%. the current drop (from the ATH earlier in the year) only amounts to a 17% decline. it's been a rough few months, but nothing compared to 2008 yet.

Quote from: wuvdoll on December 22, 2018, 09:28:17 AM

Hence, I doubt the financial crisis will have any affects on bitcoin at all for now, maybe in the future when FED keeps the strict investment rules there will be some rich folk preferring bitcoin over stocks and savings because of bad returns on them but that would take years to have any affect on the price and would be gradual and not instant results.

i don't see any signs of financial crisis. the stock market looks like we shouldn't expect a new ATH for a few years, but i'm not convinced that this represents a crisis or collapse like many people think.

wuvdoll

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Financial crisis is here and bitcoin has not skyroceted yet. American stocks are incredibly low, they have fallen as much as they did back in 2008 according to another topic here and that means the crisis already begun and no increase sight in scene. Yes, bitcoin went from 3 thousands to over 4 thousand but it went back to 3 thousands once again and even the 4 thousand wasn't really a big increase. The price needs to be at least over 6 thousand once again in order for us to say "recover" let alone anything remotely near the 20 thousand dollar line.

Hence, I doubt the financial crisis will have any affects on bitcoin at all for now, maybe in the future when FED keeps the strict investment rules there will be some rich folk preferring bitcoin over stocks and savings because of bad returns on them but that would take years to have any affect on the price and would be gradual and not instant results.

gentlemand

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Welt Am Draht

I think it'll take a poo and remain a poo, however you could take a contrarian view.

If every conventional investment dives towards the ground there'll still be a lot of money looking for a home to do something other than sit there or disappear.

Bitcoin and buddies have flashed potential but certainly haven't fulfilled it yet. Everything else has been established forever in comparison. A cynical whale, and I presume there's nothing other than cynical whales, could initiate a pump and potentially spark a stampede of idle or hurting money looking for anything with a glimmer of growth potential. In addition to collapsing horrendously, crypto can certainly grow violently when it's in the mood.

We always talk about people not taking risks because they have to pay their mortgage. We don't need to give a shit about mortgage paying people. It's the properly deep pockets who'll decide.

tosmartak

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Quote from: Pursuer on December 16, 2018, 05:19:48 AM

I agree with the first part of what Tytanowy Janusz said, during crises people are known to stay away from higher risk assets and bitcoin being volatile doesn't help that either so it surely is not the "ultimate hedge" against the financial crisis.

but bitcoin being what it is, has always been acting separate from any other market. for example when other markets are falling bitcoin has been rising in the past or vice versa. it always moves on its own and on top of that being a global asset it doesn't take effects from local incidents that much.
so in my opinion in case of a financial crisis bitcoin would either not be affected at all or rise at least a little.

Asides from bitcoin even being separate from other market, it is still very much new, and what really gave birth to it in the first place was a result of the financial crisis that ended in 2008. How bitcoin would respond to the next crisis is something we will just have to wait to see with time, but I believe one way or the other, among other things, it will serve the main purpose for why it was created in the first place which due to its deflationary features, can serve as an hedge during such period, but time will tell.

Dimas99

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it could happen without anyone knowing in the future because crypto currencies were created using current progress and technology to answer the needs of a growing economy

1Referee

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Quote from: truehedge on December 20, 2018, 02:00:21 PM

Yes I also personally see the days of gold as the best hedge numbered for the same reasons as you do. I would be glad if somebody stepped in and convinced us otherwise - assuming it can be done.

Bitcoin is superior to Gold in almost every way, so there isn't anything people can say to prove otherwise. The only thing however is that most of the traditional farts will very likely continue to ignore all our arguments as to why Bitcoin is so much better. Even when they start to realize that you are right, they will probably never admit it.

In the end, it's not even our problem that they are too close minded and stubborn to admit the usefulness of Bitcoin, because it's their loss if they don't adapt. Bitcoin is less than a decade of age, yet it's covering 1% of all the Gold in the world in terms of market cap. I'm pretty certain that within 10 years we should be able to see Bitcoin climb up to 25% at minimum.

From criminal money to an x trillion dollar asset, not bad. Grin

figmentofmyass

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Quote from: thecodebear on December 20, 2018, 02:37:46 PM

This is the big question for the next couple of years. Will Bitcoin act as a hedge or will investors dump Bitcoin that they see as their highest risk asset? Will the fact that as the larger economy and stock markets start tanking Bitcoin is bottoming mean that it will be a hedge there aren't a lot of weak hands in it? Will the next crypto boom take place as normal entirely un-correlated to the wider economy and traditional markets over the next 2-3 years? Will the economy keep Bitcoin down for a couple years, delaying the next bull run/boom?

the decoupling as the stock market dumped the last couple days was an interesting sight. i have to say, that wasn't my expectation. a short-term divergence from the correlation between stocks and bitcoin, but i'm not sure how much credence to give it.

to some, the market has already entered crash mode based on new yearly lows. to others this is max pain before the market wicks back up and traps bears. if doomsday has really arrived, then i think we'll see the correlation return when the reality sets in that the market is really crashing this time. just like gold in 2008. i'd really love to be wrong though since i keep a lot of my net worth in bitcoin for reasons other than investment.

thecodebear

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This is the big question for the next couple of years. Will Bitcoin act as a hedge or will investors dump Bitcoin that they see as their highest risk asset? Will the fact that as the larger economy and stock markets start tanking Bitcoin is bottoming mean that it will be a hedge there aren't a lot of weak hands in it? Will the next crypto boom take place as normal entirely un-correlated to the wider economy and traditional markets over the next 2-3 years? Will the economy keep Bitcoin down for a couple years, delaying the next bull run/boom?

I have no idea. For now I'm assuming the crypto market will continue to operate on its own and we'll see another boom over the next 3 years, even as a recession hits and stocks are getting pounded. I think some people will move from stocks into Bitcoin, some people will drop Bitcoin, and in the end maybe it will be a wash so the next bull run happens as usual. But only time will tell!

truehedge

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Quote from: timerland on December 19, 2018, 04:32:17 PM

I completely agree with your points. However, it really depends on the type of crisis that hits, whether hyperinflation, recession, etc.

I think that gold will still be seen as a hedge, if a financial crisis does come. People naturally revert to gold whenever there is financial instability, which could explains why gold prices rose so much post-GFC.

But gold is just too indivisible, too inconvenient, and has a high entry bar for regular investors who want to store their wealth in a safe haven. That's why I also believe that bitcoin will be seen as a feasible alternative due to its convenience, as it is also completely independent from the traditional fiat system in times of crisis.

There might not be huge spikes in price, but its value should hold relatively well in the long run due to its limited supply and detachment from the fiat ecosystem.

Yes I also personally see the days of gold as the best hedge numbered for the same reasons as you do. I would be glad if somebody stepped in and convinced us otherwise - assuming it can be done.

nl247

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Normally, when there is economic or financial crisis, it is a normal thing to see people trying to find a space they can easily get into to hedge their funds, and basically, I would not be surprised to see this as a space a lot of people will want to get into for that reason. However, we still have to understand that this is a new market, so we just have to wait to see how the reaction would be like, but there are so many other ways to hedge, it just depends on which is readily available the most anyway.

timerland

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I completely agree with your points. However, it really depends on the type of crisis that hits, whether hyperinflation, recession, etc.

I think that gold will still be seen as a hedge, if a financial crisis does come. People naturally revert to gold whenever there is financial instability, which could explains why gold prices rose so much post-GFC.

But gold is just too indivisible, too inconvenient, and has a high entry bar for regular investors who want to store their wealth in a safe haven. That's why I also believe that bitcoin will be seen as a feasible alternative due to its convenience, as it is also completely independent from the traditional fiat system in times of crisis.

There might not be huge spikes in price, but its value should hold relatively well in the long run due to its limited supply and detachment from the fiat ecosystem.

truehedge

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Quote from: Tytanowy Janusz on December 19, 2018, 02:19:22 AM

Quote from: Pursuer on December 16, 2018, 05:19:48 AM

I agree with the first part of what Tytanowy Janusz said, during crises people are known to stay away from higher risk assets and bitcoin being volatile doesn't help that either so it surely is not the "ultimate hedge" against the financial crisis.

but bitcoin being what it is, has always been acting separate from any other market. for example when other markets are falling bitcoin has been rising in the past or vice versa. it always moves on its own and on top of that being a global asset it doesn't take effects from local incidents that much.
so in my opinion in case of a financial crisis bitcoin would either not be affected at all or rise at least a little.

I hope to see that but in my opinion we should not look at the past of bitcoin. In 2014 we had mostly nerds without speculation knowledge just enjoing having bitcoin. Now we have lots of high class speculants. Price will act different because different types of investors are holding bitcoin. We are on unknown waters.

I agree that's very good point. So what is your thought - will those new rich individuals buy more or dump crypto?

truehedge

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Quote from: exstasie on December 17, 2018, 09:53:30 PM

Quote from: BitHodler on December 17, 2018, 05:22:28 PM

My personal hedge is strictly Bitcoin. I accept it completely if it ends up doing the opposite of what I expect it to do during difficult economic times. Maybe that real estate can be added to that later on, but who knows.

Real estate is tied so closely with economic health though. With housing prices endlessly rising over the same period that wages are stagnating and growth is topping out, we have to expect a crash to heavily affect real estate, just like 2008. In fact, I think stocks and real estate will suffer the most.

When everyone is losing money (through investments, loss of business, layoffs) the last place people invest money is illiquid assets like houses and multi-unit complexes in an overinflated market that's finally tipping over.

With this one I agree - illiquid assets will be probably the biggest loosers. Some stocks with insane valuations will maybe finally land on Earth (FAANG).

But I suppose person who lost their job will not be investing in anything, they will be buying food and that's about it. It's a good point though I solely assumed a rich person.

Tytanowy Janusz

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Quote from: Pursuer on December 16, 2018, 05:19:48 AM

I agree with the first part of what Tytanowy Janusz said, during crises people are known to stay away from higher risk assets and bitcoin being volatile doesn't help that either so it surely is not the "ultimate hedge" against the financial crisis.

but bitcoin being what it is, has always been acting separate from any other market. for example when other markets are falling bitcoin has been rising in the past or vice versa. it always moves on its own and on top of that being a global asset it doesn't take effects from local incidents that much.
so in my opinion in case of a financial crisis bitcoin would either not be affected at all or rise at least a little.

I hope to see that but in my opinion we should not look at the past of bitcoin. In 2014 we had mostly nerds without speculation knowledge just enjoing having bitcoin. Now we have lots of high class speculants. Price will act different because different types of investors are holding bitcoin. We are on unknown waters.

exstasie

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Quote from: BitHodler on December 17, 2018, 05:22:28 PM

My personal hedge is strictly Bitcoin. I accept it completely if it ends up doing the opposite of what I expect it to do during difficult economic times. Maybe that real estate can be added to that later on, but who knows.

Real estate is tied so closely with economic health though. With housing prices endlessly rising over the same period that wages are stagnating and growth is topping out, we have to expect a crash to heavily affect real estate, just like 2008. In fact, I think stocks and real estate will suffer the most.

When everyone is losing money (through investments, loss of business, layoffs) the last place people invest money is illiquid assets like houses and multi-unit complexes in an overinflated market that's finally tipping over.

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