This article is provided for information and education purposes only and is not intended as investment advice. Readers are encouraged to do their own research and consult a professional before making any investment decisions.
With the rounding out of 2018's second fiscal quarter quickly approaching, the threat of recession designation is looming over the cryptocurrency industry and investor confidence has been shaken. By definition, recession is a period of economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
Bitcoin began the first fiscal quarter with a valuation above 13,000 USD and slumped to 6,700 USD at the end of the quarter. Therefore, in order to stave off being labelled a recession going into the third quarter, Bitcoin would have to rebound back over 6,700 USD (not adjusted for inflation). Bitcoin currently sits at 6,200 USD.
Easy Money Breeds Helplessness
The crypto recession began long before the numbers started to turn, as easy money provided quick stimulus and a temporary boon to the entire industry. But as this easy money became more readily available, productivity per dollar of investment capital took a sharp decline. Easy money became even easier to procure as ICO's became more popular, and many great would be innovators, chose instead to pursue the quick and easy path.
But as a good trapper or woodsman might tell you, any animal can be made reliant on handouts and led against their will if you feed them for long enough. Instead of becoming great innovators of tomorrow, many of the youth in cryptocurrency are being "fed" by bad actors, to promote scams, and these are the people they are learning from, becoming reliant on.
We should help nurture these kids into great innovative roles where they can be productive for themselves, not just a handout-reliant pawn in someone else's game.
A Chance for Blue Chips to Buck the Industry Trend
A recession isn't all bad news, it's a great chance to stress test the backing and commitment of every organization in the industry. Some will have systematic flaws that will cause selloff scenarios, which occur identically to a bank run. While others' leadership and community cohesiveness will simply crumble under the immense pressure from disgruntled investors. However, a few diamonds are going to emerge from the rough, and will go on to be a focal point in global commerce.
Could This Recession Turn into A Depression? Absolutely.
An economic depression is a prolonged period of recession, marked by a significant decline in income and employment. Thanks to cryptocurrency, a massive influx of easily created capital artificially inflated wages far above the normal range that outside businesses could provide; if you earned $500 per hour as an attorney, you could earn $1500 per hour as a cryptocurrency attorney. But unfortunately, those who left their old jobs in search of riches may be in for a rude awakening as easy capital introduction is put on hold.
The main factor that will cause this is protectionism; nations don't want to subject their fiat currency to ecosystems that are highly volatile and threaten to undermine domestic sovereignty of the money supply. Governments around the world will do everything in their power to stop cryptocurrency, which will include increased capital controls.
This means the free-flowing exchange between fiat and cryptocurrency will all but halt. It won't matter if your cryptocurrency has a market cap of 1 trillion dollars because it trades with another cryptocurrency that is pegged to fiat, if you're still in line when the central bank (cryptocurrency project) runs out of cash and can no longer rely on scheming to provide liquidity, you’ll find yourself out of luck..
Short Sellers & New Investors Will Benefit
It has been said that order arises from great chaos, and the chaos in cryptocurrency will lead to a major reshuffling of the deck. A majority of cryptocurrencies are unlikely to still exist in 10 years’ time, and short sellers have been chomping the bit to get in on this market. The only problem is these markets are so volatile, a single trade can bankrupt the clearing house. For example, Ethereum rapidly crashed from $300 to 10 cents in moments. That kind of trading is too risky for any established business to take a chance on. But if they do find a way, there are some big dollars to be made on the cryptocurrency shakeout.
New investors will have a great opportunity to do proper due diligence as teams begin to establish a longer track record and display how they conduct themselves through the recession. Through these trying times the winners will shine, and the losers will whine; making it easier for investors who were formerly uneasy about putting money into cryptocurrency, to be more confident in their decision.
Smart money will drive the recovery and the top cryptocurrencies will come out of the recession lean and highly efficient. Eventually the smart money will find a way to woo government and both parties will come to a mutually beneficial agreement, where a stable cryptocurrency supplants fiat as the go to medium of exchange for global commerce. Cryptocurrency will be used as another line of defense against global instability, and it will help act as a buffer between fiat currencies whose nations are locked in trade battles; sparring with competitive devaluations that do nothing but hurt their own people.