Investing fundamentals suggest withdrawing from high-risk investments during recessions.
Although it’s reasonable to think tech companies can go bankrupt, analysts still miss the distinction between a company and a decentralized network.
We explore why cryptocurrency as an investment option may not be as dangerous as analysts believe, but it carries a risk lower than the one of corporate bankruptcy.
We also present a contrarian investing perspective that cryptocurrency is not a high-risk investment but a volatile market with vast potential for the coming decades.
Cryptocurrencies will be a defining element of the modern economy and achieve a position of importance due to their utility and lack of censorship.
The Recession And The Aftermath
Decentralized Blockchains Will Live Forever
We distinguish between private (or centralized) blockchains involving a coin that mirrors a stock, with the decentralized nature of top blockchain systems (like BTC, Ethereum, Bitcoin Cash, Litecoin, and Monero) where no person or team is in control.
Cryptocurrencies can’t go bankrupt, but the prices are extremely volatile.
In PoW (proof-of-work) networks, if prices decline hash rate will follow. In PoS (proof-of-stake) networks such as Ethereum today (after the shift from PoW), the networks operate with staking mechanisms so they will shrink in size, but will not shut down either.
No scenario of blockchain bankruptcy exists.
In this sense, we should expect an influx of funding into decentralized cryptocurrencies during a recession.
Technology Will Boost The Economy (Again)
Bitcoin was born amid a sharp recession that devastated economies and brought top financial institutions to the ground.
Yet, we have no data on the behavioral analysis of Bitcoin during a global economic disturbance like a recession.
The only incident we’ve experienced before was the black swan of March 2020, the sharp market crash (and the instant recovery). Nobody hopes for a recession, but investors prepare accordingly.
One question that emerges is how sharp the recession will be. Although, the point of interest should be how the world will adjust after the recession reaches the bottom and a new economic uptrend begins.
Technological advances herald us into the promising era of the fourth industrial revolution.
The Not-So-Distant Future
We envision the future as an amalgam of the most promising new technologies like AI, Robotics, Faster Internet everywhere (5G, with 6G under development), the Metaverse, IoT, but also Blockchains, and Web3 (or a Web3 alternative) and even quantum computers and fusion power.
Smart automation, interoperability of networks, trustless, secure and permissionless systems will further incentivize economic progress, remove intermediaries, promote commerce, and deliver immense value to humanity.
Space exploration and space tourism will exponentially rise as visionaries already work towards the next small step forward.
Positioning of Cryptocurrency in The Modern Economy
Cryptocurrencies and the technologies behind them, like blockchain and Web3, can be integral to the modern economy that will emerge after a possible recession.
Corporations will try to transform into a less centralized structure to survive and prosper in the new competitive landscape.
Cryptocurrency is not just a payment system anymore. Smart contracts will integrate with every aspect of technology and finance.
Decentralized blockchains are not just delivering financial freedom but also paving the way for better governance.
Investing Risk And Potential For Global Adoption
Investing in a company comes with the risk of trusting the validity of the books. An extended recession spares no one, and as profits evaporate companies will shrink or file for bankruptcy.
Investing in decentralized cryptocurrencies is combined with high volatility but not with the risk of the network shutting down. Investors can have valid grounds that the price will recover from a bear market (depending on developments, market positioning, and adoption).
The banks tested DeFi and plan to release financial products resembling this technology. Corporations and financial institutions adopt top cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash (BCH), and Litecoin (LTC), but mostly when the market is already overheated.
The Real Risk
The risk with cryptocurrencies is investing in the wrong ones and waiting for returns without considering that some networks will fail to constantly innovate, increase their network effect or deliver a ready product.
We have networks millions of people can use, but adoption has not spread as many expected.
Finally the lack of regulatory clarity is an issue that pushed innovative financial technology into a state of black markets.
Closing Thoughts
A recession will not slow down developments in the cryptocurrency ecosystem.
Networks that outperform in all metrics do not meet user numbers they could have achieved, but we predict the rise of permissionless financial instruments.
Perhaps Bitcoin (BTC) can grow more as an institutional asset form, but other cryptocurrencies cover the gaps in scalability and innovation.
We have cryptocurrencies with a clear focus on robust scalability and performance without sacrificing censorship resistance, but we also find crypto communities that innovate with smart contract capabilities, DeFi, NFTs, and Metaverse developments.
One thing is for sure: The future is bright for cryptocurrency.
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Originally published at Medium
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