Could a Global Recession Fuel Bitcoin Adoption?

Most analysts now agree that the economic impact of the coronavirus will continue to be felt for years to come, with comparisons drawn to the Great Depression of the 1930s. While developing countries will inevitably be among those hit hardest, due to a lack of medical infrastructure and existing government debts, many developed countries are also set to take a beating. 

The US is getting hit hard, with virus cases continuing to spiral out of control, and months of business closures causing record levels of unemployment. European countries such as France and Germany were already teetering on the brink of recession even before they went into lockdown. Meanwhile, the UK is pressing ahead with its hard Brexit plans, even despite the dire economic consequences predicted by experts. 

If the outlook for fiat currencies doesn't look good, the prospects of stock investments holding their value also seem remote. One op-ed in the Financial Times warns that investors are falling into a false sense of security regarding the upcoming "debt crunch."

So what are the options for anyone looking to protect their finances over the coming months? In such times, investors have traditionally looked to safe-haven assets such as precious metals, which are undoubtedly having a moment right now. But as odd as it may seem, given their historic volatility, cryptocurrencies could have much to offer in the months ahead. 

The Case for Crypto in a Recession

Although Bitcoin hasn't yet had to weather a global recession, we already have some precedent when we consider Bitcoin adoption in countries with less stable economies. A survey last year showed that Bitcoin adoption is highest in Latin American countries such as Argentina and Mexico. It seems that when a national currency displays volatility, citizens are more eager to convert their wealth into digital currencies. So, if the dollar, pound sterling, and euro all start to lose value, it seems likely that people could start to look more favorably on cryptocurrencies as a store of value. 

This seems even more likely when we consider that some of the worst affected by the crisis will be younger people, who will find themselves worse off in terms of pay and opportunities. The younger generation is, in general, more digitally fluent and open to cryptocurrency adoption. Cryptocurrencies, and the blockchain technology on which they're based provide opportunities for wealth creation through trading, and investing in up and coming firms and projects. In general, technology is proving to be one of the sectors least affected by the coronavirus crisis. 

Finally, cryptocurrencies are becoming more mature. Far from the old days when getting into crypto meant buying Bitcoin from one of the few exchanges on the market, there's now a plethora of ways to trade and invest in digital assets. In particular, the crypto-derivatives sector has been growing at a rapid pace over the last few years. The availability of futures and options offers opportunities to hedge against the downsides. 

So how can people access these opportunities? 

Beginner-friendly Onboarding

For newcomers, a cryptocurrency on ramping service from a reputable company like Skrill is an ideal place to start. Skrill has a long background in the payments industry, providing services similar to its rival PayPal. The company expanded into crypto in 2018. 

It's a very beginner-friendly way to get into digital assets, as users can use their existing Skrill account balances to simply buy Bitcoin or a range of other cryptos on the same interface as the payment service. It's secure and avoids the need for users to put their funds on cryptocurrency exchanges, which have proven to be honeypots for hackers over the years.  

One feature that may appeal to those looking for a more passive way to invest while hedging against extreme volatility is the automated ordering function. Users can set up regular recurring orders to implement a dollar-cost averaging strategy, which is proven to offer savings against the average price of an asset over time. 

Limit orders offer additional security against sudden market movements, which can happen in the 24/7 crypto markets. 

Overall, Skrill offers an easy and safe way for retail investors to dip their toes into the crypto market and diversify a portfolio at risk of shrinking due to the recession. 

Advanced Hedging with Options

For more advanced investors and traders, there are now a range of cryptocurrency derivatives platforms on the market. Futures contracts offer a way of speculating on the price of Bitcoin or other assets using high leverage, so the opportunity for profits is magnified. Trading with leverage can be a high-risk strategy, which is why the entry of hedging instruments such as options is also welcomed by most market participants. 

Until recently, Panama-based Deribit had cornered the market in crypto-backed options. However, other exchanges, including OKEx and soon, Huobi, have made inroads in options products in response to market demand.

The increasing availability of hedging instruments in crypto couldn't come at a better time than now, when more advanced traders and investors are looking for new ways to hedge their portfolios against broader market losses. Having a familiar toolset available means it's more likely that they'd be drawn towards cryptocurrencies. 

To paraphrase John F. Kennedy, out of crisis comes opportunity. The coronavirus may continue to cause chaos in the world's financial markets and for the average Joe consumer. But tech, and specifically crypto, are well-positioned to weather the storm, creating opportunities for those willing to take them.