Trading Bitcoin in Turbulent Times: Navigating Cryptocurrency Markets During Economic Downturns
The cost of living crisis has everyone taking stock of where they’ve put their money and how safe it is. It’s wise to want to reassess what you’re putting your faith in. And following the world’s best investors and traders can give you a good idea of where to invest. In this piece, we’re looking at Bitcoin and cryptocurrency in times of turbulence. The world’s first cryptocurrency has proved itself to remarkably resilient but also intrinsically volatile, leading many to wonder how the Bitcoin price during recession might look.
Although traditional asset valuations often hint at the health of the economy, Bitcoin is more complex. Often, it’s counterintuitive. This behaviour has made it an intriguing option for traders who want to diversify their portfolios and profit from market instability. An example of this contrarian nature came during the COVID-19 pandemic. Stock markets plummeted in March 2020, when the world descended into lockdown, and Bitcoin was initially no different. However, this didn’t last long.
Not only did Bitcoin quickly rebound, it recovered to reach new all-time highs in the subsequent months. The recovery did wonders for its reputation. Everyone who had Bitcoin was hailed as a pioneer, and those who didn’t lusted after the potential ‘digital gold’, hoping to acquire some for the uncertain times ahead. There were multiple factors that drive Bitcoin’s price in these times.
There is the safe haven demand factor, in which investors turn to Bitcoin as a hedge against devaluation of traditional currencies. Then, the increased adoption of the cryptocurrency raises its value too. Anyone previously wary of cryptocurrency became attracted to it by the same things they were initially suspicious of, primarily, loose monetary policies. An alternative asset gains a new appeal and appreciation when traditional counterparts are plummeting in value. It makes sense.
Having said that, investors can quickly find out that Bitcoin is not a sure thing. The price can also fluctuate during economic downturns, and the high volatility means that prices swing wildly in both directions. Because it’s so novel, it can catch even the most experienced traders off-guard. Yet there are strategies that you can employ to steady the digital ship.
Dollar cost averaging is a simple trading strategy that involves making regular, smaller purchases over time to mitigate short-term volatility. This doesn’t involve a lot of planning and can become easily incorporated into your routine. It’s important not to put all your eggs in one basket, that’s good practice for investing generally. You can use Bitcoin to balance potential losses in your traditional portfolio. And you can work the volatile nature in your favour with swing trading, with holding (or HODLing) being the alternative.
Although there are historical examples of Bitcoin prices rising during economic downturns, trading comes with its challenges. There are bigger gains up for grabs, but also bigger risks. Liquidity can also become an issue, especially on smaller exchanges, potentially leading to slippage and difficulty executing trades at desired prices. Then, we have to think about the knock-on effects of an economic crisis. Regulatory crises can occur during this time, which impacts Bitcoin’s price and trading conditions.
Anyone considering trading Bitcoin during a recession needs to remember key points for trading. The first is that you don’t invest more than you can afford to lose. We would recommend keeping abreast of crypto news to keep up to date with trends and to do your best to stay ahead of the curve. Then again, if you’re dependent on that news to understand what to do next, we recommend investing time into researching how blockchain technology works. And most importantly, prepare yourself for a bumpy ride.
Going forward, we can expect the popularity of Bitcoin to only go up, especially with there being no end to economic trouble in sight. Although Bitcoin’s price during a recession isn’t easy to predict, we see why it’s an interesting option for both traders and investors. It’s best to approach trading with caution, particularly when it involves cryptocurrency. Don’t get dazzled by success stories or blinded by regrets at not getting on it at the ground floor. Take a breath and conduct your trading in a sensible manner.
Nobody is ever excited for a recession, but it will be interesting to see how Bitcoin performs when the next one inevitably hits, hopefully many years down the line. Whoever is around to see it will undoubtedly watch its performance closely, as well as that of other popular cryptocurrencies. It may have a significant impact on how we view assets in the 21st century. By then, the role of Bitcoin in our society may have evolved. It’s not that far-fetched, really. It may not be the primary currency that we use, but everyone may have some Bitcoin in their wallets. For a rainy day or two, perhaps.