Cryptocurrencies – despite appearances or expectations of some blockchain fans – are not lonely islands. Therefore, their functioning can be affected by many political or economic phenomena. Which of these factors will have the strongest impact on Bitcoin and its derivatives?
Some people believe that economic conditions – especially low interest rates – may make cryptovalut and blockchain start-ups seem like an attractive investment, while many economists still anticipate a global recession next year, which may raise the status of cryptocurrencies as a “safe haven”.
There is another piece of the puzzle. At the same time, there are slow attempts by governments to move towards their own central bank digital currencies (CBDC). This, in turn, may have a negative impact on decentralised cryptocurrencies, which will be hit by increasingly stringent regulations.
2019: mixed picture
2019 was supposed to be a breakthrough. Many believed that the struggling global economy, Brexit and other problems of the modern world would help to increase interest in cryptocurrencies.
How accurate was this prediction? First of all, the stock markets recovered much of the lost value. These traditional assets have therefore become attractive again. All right, Bitcoin also had its 5 minutes, even a mini-bubble, but there couldn’t even be a 2017 scarf.
But something really dangerous and disturbing started to happen in the background. The global economy suffered from a relative slowdown in 2019. This is the result of trade tensions between the US and China. It is possible that it is because of this, however, that the cryptocurrenciesstrengthened compared to 2018.
Brexit – Britain’s exit from the EU has not really happened yet in 2019. We will wait for them until 2020. With what effect for BTC? Until now, cryptocurrencies have gained in such critical moments. But the Brexit saga and the related drama have probably already stopped affecting investors.
To sum up, the mixed picture of 2019 has still made Bitcoin grow 91% between January 1 (USD 3770) and December 20 (USD 7 201). Only a slightly unstable global economy has doubled its value. What will happen next?
2020, cryptocurrencies and economics
All right, what’s the 2020 deadline? Interest rates are likely to remain low in 2020, which means that investors will continue to look for opportunities for higher returns, beyond deposits. As Glen Goodman, author of “The Crypto Trader,” notes, this means that they may be heading towards the cryptocurrencies.
“While cryptocurrencies prices are low and Bitcoin does not make it to the top of the portals, blockchain companies continue to develop their infrastructure and services quietly in the background (…). With global interest rates still so low, investors are constantly looking for profit, and this will help encourage them to take advantage of cryptographic projects.
– he thinks.
The year 2020 may not be determined solely through the prism of low interest rates, as the recession of the world’s largest economy, the USA, is still possible. However, according to Eugenio Aleman, economist at Wells Fargo Bank:
“The panel is divided on when the next recession will begin. (…) Respondents believe that the chances of GDP growth dropping by mid-2020 are about one fifth, but indicate that there is a third chance that the downturn will only start in the second half of 2021 or later.
Coupled with the UN’s recent warning of a global recession that may occur next year, this news may suggest that there is a real possibility of a downturn. Nevertheless, while some expect that this will make some cryptocurrencies more attractive as a safe haven for this period, some experts note that they will gain only the usual stable assets like gold.
2020 and politics
Brexit without agreement remains a viable option in 2020. It has to be taken into account that British Prime Minister Boris Johnson is playing pretty hard and it is not entirely clear how the history of UK participation in the EU will end. The final Brexit without an agreement will hit the global economy and be the first such strong shock to the EU community since the Greek crisis many years ago.
Trade wars and military tensions will be another big problem next year. In particular the tensions between the United States and some other countries (Iran, North Korea). These may bring us closer to the spectre of war, and while actual armed conflict is still unlikely, continued uncertainty may push more investors towards the crypts.
“When investors get nervous about political or military conflicts, there is a flight to safe havens, which usually means selling risky assets and putting money into what matters”.
– explains Glen Goodman.
“Now that large, well-established institutions such as Fidelity Investments offer secure storage of cryptographic assets, we are well on the way to a [vision] future in which investors see Bitcoin as a secure currency.
– he added.
21st century currencies.
The attractiveness of central bank digital government currencies (CBDC) is also growing. China plans to launch its own CBDC in 2020. France and Turkey will also test their digital currencies next year, while the US and EU central banks are also considering the possibility of introducing their own e-coins in the future.
At this stage, it is difficult to assess how the issuance of national CBDCs will affect cryptocurrencies. On the one hand, the development of crypto and chains of blocs may prompt governments to create rules and conditions conducive to the growth of all cryptocurrencies in general.
On the other hand, the creation of “official” currencies may make governments more hostile to genuinely decentralised crypto, which may increasingly be seen as threats to current monetary systems.
“The war on digital currencies is now hot” – This is Glen Goodman.
“Unfortunately, because this war is about taking power, it doesn’t mean that superpowers will become more open to decentralized crypts like Bitcoin. Their plan is for controlled, centralized digital currencies and they don’t intend to allow an external currency like Bitcoin or even Facebook Libra to [allow such projects] dominate world trade.”
An unpredictable decade
We have a really exciting (but probably also terrifying) decade ahead of us. The changes that are taking place in economies and politics can never be fully predicted (we recommend reading other such forecasts to find out). Thinking in terms of decades… This is a task almost doomed to failure. Who would have predicted the UK leaving the EU ten years ago? Or the victory of someone like Donald Trump in the presidential election? But these are only the first examples.
But assuming that there will be more economic crises over the next decade that will weaken fiduciary currencies (especially in terms of inflation), it is reasonable to expect that cryptocurrencies can rise in parallel with the collapse of the former. Although hopefully they do not need such disasters to gain wider application.