The American economy has stayed remarkably stable after its comeback from the low points of the pandemic. However, a recent stock market tumble — which some are merely calling a “correction” — has made some experts nervous that there’s a coming recession.
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When a recession looms, what does that mean for investing in bitcoin, a cryptocurrency that itself has had significant ups and downs? Though bitcoin is not often recommended as a surefire investment, crypto experts here explain some reasons why you should invest in it ahead of a possible recession. You can also check out why it might be a risky play, too.
It May Hedge Against Uncertainty
John Creek, the founder of CoinBuzzFeed, a crypto news publication, said, “When fears of recession loom, investors often pull money out of stocks and put it into ‘safe haven’ assets like gold. Bitcoin, with its limited supply and uncorrelated nature, also attracts some of this capital.”
This could potentially increase the value of bitcoin and make it hold its worth when other assets are declining in value.
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Bitcoin Is Decentralized
Blake Morgan, managing partner of the crypto tokenization company Mineral Vault, said that since bitcoin is decentralized and not under the direct influence of any particular country’s economy, it may retain its value against the devaluation of other currencies and inflation.
However, he recommends having a secure digital wallet to protect your bitcoin investments from cyber threats.
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Follow the Institutional Investors
Creek said his team has noticed an uptick in institutional investors buying bitcoin futures to hedge their broader portfolios.
“Major firms like Fidelity now offer bitcoin funds, making it easier for people to gain exposure,” he explained. This may make it simpler to add bitcoin to your existing investment portfolio, much like some of the bigger players in the business are.
Bitcoin Might Surge While Other Assets Decline
According to Becky Leighton, content head at CoinInsider, bitcoin’s reputation for volatility is actually a bit outdated.
“Bitcoin is a strong hedge against inflation and falling fiat [government currency not backed by gold] prices. I’ve seen traders make their money on strategies built on buying bitcoin during market crashes. The price moves up while fiat’s strength drops,” she said.
Bitcoin Might be ‘Digital Gold’
Leighton said that while historically, stable assets like government bonds have been sought after during the market turn, “Bitcoin has become the digital gold and is safe from the traditional currency’s waves during a recession.”
However, she did warn that it is very important to look at national law and regulation about owning bitcoin before investing in cryptocurrencies.
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You Might Get a Better Price Now
Since a possible recession isn’t here yet, Leighton recommended, “Starting to invest in bitcoin now and gradually [adding it] to one’s portfolio is a good strategy for not overspending now or losing on the opportunity to take advantage of positive price action later.”
It’s Good To Diversify Your Portfolio
Considering the generally high prices at which bitcoin has traded during economic downturns, Morgan said this might be a good reason to include it in your portfolio for the sake of diversification.
“Proper diversification helps to spread out the risk of investment loss or portfolio devaluation and increases overall returns,” he explained.
That said, Morgan cautioned that nobody should overinvest in bitcoin. “Always do your research and consider your risk tolerance before investing; consider investing a small amount first if you are a new investor in cryptocurrency.”
It Should Work in Small Amounts
Despite these good reasons to invest, bitcoin is considered a volatile asset.
Creek said, “So I don’t recommend betting the house on it. But allocating a small portion of a portfolio to bitcoin, especially ahead of a recession, could provide solid returns if it acts as a hedge and attracts more mainstream interest.”
Overall, he feels that “the future looks bright for bitcoin as an uncorrelated asset class.”
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