Last week, eToro’s senior market analyst Mati Greenspan shared his thoughts on the future of Bitcoin during a free webinar.
During the talk, he discussed what factors could influence the short-term price of Bitcoin, when the upcoming halving should be priced in, the Bakkt effect, and how the long-term price of Bitcoin may be affected by recessions.
A likely economic downturn
Greenspan started by mentioning two of the most pressing issues within the global economy, stating: “Bond yields have started to invert and there’s low interest rates everywhere.”
According to the analyst, the European Central Bank (ECB) has been printing a few billion euros every month to cover weak spots in the EU’s economy.
Meanwhile, the US has been doing the opposite, with the Federal Reserve looking to reduce the balance sheet rather than print more money. In the past few months, the Fed has started to reduce interest rates again to help drive the economy in an upwards direction.
Greenspan believes the Fed’s strategy has been working, stating: “Since the financial crisis, stocks have been growing steadily.” Essentially, the senior market analyst believes money has been piled up and sent directly to the stock market.
If things were to fail, there’s room for major drops in the stock market, with potential falls of at least half of the total current market value.
Until money stops being printed and pumped into the economy, the market may continue to grow.
What’s the most likely long-term scenario with constant money printing? Greenspan believes a “currency war” could be on the cards, where every country will attempt devalue their currency so that they benefit the most from trade.
Japan has already devalued the yen against the US dollar, much like China’s RMB, and other countries will most likely follow.
According to Greenspan: “Brexit is a smoke and mirrors situation as the British Central Bank hasn’t been pumping money into the economy.” In his view, that’s because this tactic gives Britain a lot of room to move around and benefit from a weakened currency.
If money dictates economic success, monetary policy dictates the path to success. Britain’s monetary policy has been way more strict than the EU’s.
How to protect value
During the talk, Greenspan mentioned how investors could avoid big losses, stating: “Diversify, make short bets against the market.”
Investing in different opportunities will leave investors and traders in a much better position in the long term as risk is diversified.
Precious metals like gold have been doing quite well recently and offer a safe hedge against more volatile assets. Since 2019, gold’s price has increased over 20%, and silver has pumped as well.
Crude oil is currently under threat as it has been extremely volatile following the drone attacks in Saudi Arabia. It has been unable to reach its previous peaks and is perhaps one of the riskiest commodities to hold at the moment.
Greenspan also spoke about renewable energies and the importance of investing in green sectors, as more and more people are starting to push the environment narrative to a whole new level. Corporations are now starting to feel the heat (pun intended).
Bitcoin during a recession
Bitcoin does not yet know how to react to global recessions. Bitcoin was born in 2009 at the bottom of the last global economic downturn and has only known a bull market.
How will Bitcoin react to a global crisis? We do not know.
According to Greenspan: “If this were 2007, Bitcoin would be a very risky asset, just like stocks. But now the question becomes how does this recession play out?”
If the recession is gradual and the Fed is able to control inflation, then Bitcoin would most likely go up like stocks.
However, if we have a severe recession with a debasement of global currency, oversupply can lead to a decrease in demand. If there is hyperinflation, Bitcoin would moon. However, no indications of this scenario happening have been shown.
During severe recessions, stocks tend to fall as people hoard cash, so Bitcoin would most likely face a bearish season.
Even though there are no certainties, Greenspan pointed out the most important aspect of investing: diversification. As long as you are able to diversify your risk, the chances of suffering high losses significantly diminish.