$1.1 Trillion Crypto Meltdown Isn't Enough to Write Off Bitcoin
Though there are reasons to prefer gold as the best hedge against recession, it would be a mistake to dismiss Bitcoin.
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Bitcoin was meant to be the poster child for 2025 into its fourth year, with the halving cycle structure playing out as most traditional Bitcoiners had mapped out.
But to their detriment, it is now officially down on the year versus its older brother, gold, which is up 50% year to date!
Most have ignored the old yellow relic, once deemed to be a boring asset class that was just a recession hedge. But it has evolved to something so much more important. Not only is gold an inflation hedge and a recession hedge, it is also now a viable reserve asset outside of the USD. Especially since the war in Ukraine began, global central banks are slowly selling their U.S. treasuries to hoard more gold as the ultimate backstop.
Be that as it may, timelines and investor comfort matter. Gold has been around and trading since the earliest days of civilization and was adopted as part of a universal standard in the 1800s. Bitcoin had hardly come into the mainstream until about a five years ago. It existed before, but only to a select few computer nerds.
As it is getting more and more mainstream, its style of trading and investor risk appetite changes. It will be years before it becomes a fully mature asset class, but it is well on its road to getting there. An asset class in its nascence usually has a ton of large drawdowns, it only goes hand in hand with its multiple percentage term returns.
At each high, shrieks of "$1 million-plus" are echoed and at each nadir, calls for collapse and doomsday proliferate. But that does not mean it’s not useful.
Over the last 41 days, crypto has erased -1.1 trillion in market cap, or $27 billion per day. Over the last week, daily liquidations of $500 million have become a normal thing. However, today, the U.S. is preparing $2,000 stimulus checks and Japan just announced that it was preparing a $110 billion stimulus package. This is after China had approved a $1.4 trillion stimulus package. The U.S. government was shut for 42 days and during that time the U.S. debt went up by $620 billion alone!
So, Bitcoin's fate is far from sealed.
It is being adopted by larger institutions and now being fully adopted as part of the global banking system, even the U.S. government, including many others. It is here to stay.
But calling a spade a spade, it is the risk-on levered play on the secular story behind gold and it is based purely on the fiat currency debasement theorem, which relies on central banks printing money ad nauseam to prevent any economic crisis or systemic financial risk. But it feeds on liquidity. At times of stress, when liquidity is withdrawn, it underperforms. But at times when the system is flush with cash, it thrives.
To write it off entirely would be a mistake, but it is important to see its risk for what they are. But, then again, it has proved to be the best performing asset class over the last 10 years dwarfing any other. No pain, no gain!
