Can Bitcoin survive a recession?

[Misesian]

At the moment Bitcoin is in a bubble because most buyers aren't buying for fundamental reasons (use as a means of exchange) but for speculative reasons, similar to the housing bubble where many bought with the belief house prices would continue rising. What happens though when economic conditions change and people start to desire more liquid assets? Could we see the market flooded with Bitcoins with people intending to cash in on their profits leading to a collapse in it's price?

Sure Bitcoin has many great qualities that would make it a great means of exchange but because most of us are hoarding them and not spending, can Bitcoin survive a recession?

I apologise if this question has already been asked

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Well recessions are partly due to inflation. Since bitcoin can be deflationary its a bit different. It's also worldwide and should become less prone to problems in countries.

You can call it a "bubble", but its not like a housing bubble where people just cant afford to hold the asset based on debt forcing a huge sell off.

When you say it will survive, i take it as worth more then a dollar. So my answer is yes.

[Trujillo]

At the moment Bitcoin is in a bubble because most buyers aren't buying for fundamental reasons (use as a means of exchange) but for speculative reasons, similar to the housing bubble where many bought with the belief house prices would continue rising. What happens though when economic conditions change and people start to desire more liquid assets? Could we see the market flooded with Bitcoins with people intending to cash in on their profits leading to a collapse in it's price?

Sure Bitcoin has many great qualities that would make it a great means of exchange but because most of us are hoarding them and not spending, can Bitcoin survive a recession?

I apologise if this question has already been asked

To say most buyers are in bitcoin for speculative reasons is incorrect. People do want to make money because bitcoin is an investment but they also understand that there is a lot of infrastructure in development and it will soon have much more purchasing power. We already know that Zynga and Overstock will start to accept BTC this year and with others such as Facebook, Netflix, Newegg, etc. looking into it, I like bitcoin to stand the test of time.

[Misesian]

At the moment Bitcoin is in a bubble because most buyers aren't buying for fundamental reasons (use as a means of exchange) but for speculative reasons, similar to the housing bubble where many bought with the belief house prices would continue rising. What happens though when economic conditions change and people start to desire more liquid assets? Could we see the market flooded with Bitcoins with people intending to cash in on their profits leading to a collapse in it's price?

Sure Bitcoin has many great qualities that would make it a great means of exchange but because most of us are hoarding them and not spending, can Bitcoin survive a recession?

I apologise if this question has already been asked

To say most buyers are in bitcoin for speculative reasons is incorrect. People do want to make money because bitcoin is an investment but they also understand that there is a lot of infrastructure in development and it will soon have much more purchasing power. We already know that Zynga and Overstock will start to accept BTC this year and with others such as Facebook, Netflix, Newegg, etc. looking into it, I like bitcoin to stand the test of time.

Being in for speculative reasons isn't a bad thing, if you believe something will be of higher value in the future why not get it while its at a low price, but you cannot deny most people are in it for speculative reasons, most people are just buying and holding.

What I'm worried about is if another recession hits which is very likely in the future due to high debt levels in many western countries, people may have to liquidate their holdings in bitcoin because maybe they lose their job and need money to pay their bills and rent etc. and most people don't accept bitcoin as a form of payment. This could cause the price of bitcoin to suffer greatly and maybe even die.

[LiteCoinGuy]

i guess BTC will die then.




NOT!

[bittymymitty]

Bitcoin first began getting into the mainstream media because of a recession.  When the Cyprus government raided everyone's bank accounts, everyone ran to Bitcoin.  Cash is not always king in a recession, the king is a safe place to store your assets.

[amincd]

Given a recession is usually caused by a monetary event, and Bitcoin solves many major monetary problems, it can thrive in a recession.

[minerva]

Bitcoin is deflation?  But who is mine?!  




Bitcoin cannot survive a recession until 2021.  If demand goes flat then Bitcoin will see a 10% inflation from mining alone and then there will be additional inflation from the hash-based security and transaction fees.  If Bitcoin's inflation is 10%+ who would keep their money in Bitcoin when the $Fiat inflation in most developed countries is 0.5% to 3%?   You're really going to keep your money in Bitcoin when it devalues 8%+ compared to the the $USD?!  You may as well start writing cheques to the Bitcoin Foundation.


This is why I strongly recommend that anyone, with a fortune in Bitcoin, should get their money out when they have the chance.  Demand for Bitcoin isn't infinite - when new investors stop coming in then the inflation will become evident to everyone and that is when the selling panic will begin.

Peercoin and the upcoming eMunie are the only coins, as far as I know, that can be made deflationary.  Bitcoin won't be deflationary until the last coin is struck and then the deflation will come from lost wallets (lost wallet = Bitcoins removed from circulation and therefore the coins in circulation are worth more).

That graph is wrong.
Bitcoins aren't mined exactly 10 minutes per block, or otherwise block difficulty wouldn't be adjusted so often.

[johnyj]

A recession is caused by inflative monetary policy, which require forever expanding debt. When economy sometimes does not grow, the interest cost of those debt will crash the system and cause large scale sell-off of investment targets like stocks/houses

In future, when people are starting to take out loans to buy bitcoin, if its price does not advance, the interest cost will force them to sell-off the coins to pay back the loan, that will cause the value of bitcoin to plunge. Again it is caused by loan based financing practice, if people never take out loans to buy bitcoin, they won't have such trouble

Inflative monetary policy and fractional reserve banking is the biggest reason behind financial instability

[Misesian]

A recession is caused by inflative monetary policy, which require forever expanding debt. When economy sometimes does not grow, the interest cost of those debt will crash the system and cause large scale sell-off of investment targets like stocks/houses

In future, when people are starting to take out loans to buy bitcoin, if its price does not advance, the interest cost will force them to sell-off the coins to pay back the loan, that will cause the value of bitcoin to plunge. Again it is caused by loan based financing practice, if people never take out loans to buy bitcoin, they won't have such trouble

Inflative monetary policy and fractional reserve banking is the biggest reason behind financial instability

Yes but when a recession hits we all feel it, we feel our wealth depreciate leading to a drop in consumer confidence, people aren't going to want to keep their bitcoins as you can't really buy many things with them despite their high value, maybe those who can afford to hang on to them will but many will be looking to get back into dollars so they can buy real goods, can you imagines the wives who will insist that their husbands sell their bitcoins to help with hard times. If the dollar loses a lot of it's value and there is major inflation I don't see the common business owner turning to bitcoin, it hasn't really hit that level of mainstream yet, we're still in the early stages like when the internet was young where the only people involved are the ones who believe in the potential of the technology.

[sehdal]

Actually I never thought this was even an issue. You are right that Bitcoin drifts between being seen as a commodity/asset that people store and as a medium of exchange. I think its the latter of these that is more significant in terms of its implications and where its most important that Bitcoin continues to grow; since then Bitcoin will be taken increasingly seriously in the global economy as an alternative money form.

However, we also know that the one certainty in a recession is that the price of gold will rise. Because Bitcoin is similar to gold in that it is finite and mined, and because its growth in value has historically had some clear parallels with gold although in much more volatile fashion (see the third figure down in this blog post from Stubborn Mule http://www.stubbornmule.net/2013/05/bitcoin-what-is-it-good-for/).

That would suggest that another recession (which is certainly more than on the cards, since nothing has really changed since the last one) would be a great thing for Bitcoin. Because during economic crashes people lose their faith in the existing money supply and look for alternatives like gold, and increasingly now: like Bitcoin.

Also government and banks are trying to inflate their way out of the downturn at the moment - which is likely to get even worse after another crisis, so that means people who are still fortunate enough to have savings (they do exist in significant numbers even if they are being continually punished by prolonged low interest rates) will look for an alternative way of converting their savings. A way less prone to inflation generated by ever increasing paper money supply, which again will result in an increase in Bitcoin's value.

[johnyj]

A recession is caused by inflative monetary policy, which require forever expanding debt. When economy sometimes does not grow, the interest cost of those debt will crash the system and cause large scale sell-off of investment targets like stocks/houses

In future, when people are starting to take out loans to buy bitcoin, if its price does not advance, the interest cost will force them to sell-off the coins to pay back the loan, that will cause the value of bitcoin to plunge. Again it is caused by loan based financing practice, if people never take out loans to buy bitcoin, they won't have such trouble

Inflative monetary policy and fractional reserve banking is the biggest reason behind financial instability

Yes but when a recession hits we all feel it, we feel our wealth depreciate leading to a drop in consumer confidence, people aren't going to want to keep their bitcoins as you can't really buy many things with them despite their high value, maybe those who can afford to hang on to them will but many will be looking to get back into dollars so they can buy real goods, can you imagines the wives who will insist that their husbands sell their bitcoins to help with hard times. If the dollar loses a lot of it's value and there is major inflation I don't see the common business owner turning to bitcoin, it hasn't really hit that level of mainstream yet, we're still in the early stages like when the internet was young where the only people involved are the ones who believe in the potential of the technology.

True, and if you don't use fiat money, you might never get a recession at all. It is the loan based financing model caused asset bubble and recession. If everyone first save risk capital and then invest, even the investment failed, they won't lose more than their risk capital. But if everyone take loan to invest, if the investment failed, there will be large scale of default, then FED must print enormous amount of money to artificially support the price of the assets in those wrong investment