Will the financial crisis impact crypto?
Yup, the normie coins are unstable. Here's what’s going down in the crypto world, too.
Seen the news? It’s all about money, and Liz Truss, and Karen Millen dresses, and how the dollar looks really, really nice in comparison to those coins with the dead Queen on them right now. Add to that gas prices from hell and an absolutely minging “mini budget” (followed by a mini U‑turn), and the economy of the United Kingdom doesn’t look too clever, does it?
What does it mean for crypto when normie coins go to shit? Well, its value actually went up after the Queen died, but since then it’s generally fallen across the board. One ether, for instance, is worth about £370 less at the time of writing than it was on September 9th, according to coinmarketcap. This is in part because there are similarities between how crypto and the economy run (the “mini-budget” was announced on September 15th, and there was a notable value dip in ETH on that day, too). The connection is most comparable to how the stock market performs in these times, because in essence, investing in crypto is pretty similar to putting money into stocks.
As the cost of living crisis worsens, it feels like we can’t leave the house without spending a load of cash, whether it’s on extortionate train fares or just a trip to Aldi. And when times are tough, people tend to hedge their bets, as well as cut back on spending. This means riskier, more volatile stocks, or ones that aren’t performing well, are often sold by investors.
The thing is, crypto is way more volatile than the stock market – stocks consistently grow or shrink, whereas crypto can leave people feeling like their heart has been used as a yo-yo. If we’re being totally honest, crypto’s not a much better bet than every accumulator you’ve ever lost at the bookies. (You can read up on the riskier sides of crypto here.)
This means people are more likely to pull their pennies out of crypto exchanges like Coinbase and Binance when the economy takes a hit, and put them into traditional bank accounts like… well, you know what current account options are out there. Some stocks – particularly one related to healthcare, food and transport – can even do well in a recession because they’re essential for daily life. Given that crypto isn’t, you can see why most don’t deem it to be a sensible investment.
When people pull money out of crypto, it’s bad for the entire industry. There’s a few reasons for this, one being that the overall market is worth less. With less money floating about, positivity can also decrease, as can general productivity within the industry. In the case of individual coins like Dogecoin to Bitcoin, when fewer people own them, more coins become available, in turn making them less valuable.
There are also some IRL consequences of the crisis. Bitcoin is very energy-intensive to mine, for example, and with the cost of energy going up and up, this means Bitcoin miners are going to have quiiiiite the bill. Same with other crypto-related businesses that operate from physical buildings and/or use a lot of equipment.
There is some optimism for cryptocurrencies that have been made legal tender in certain countries, though, such as Bitcoin. Global economy issues might make the country’s citizens more keen to seek alternative forms of currency, you know, which could potentially drive value back up again.
But it’s also worth remembering that crypto is still pretty small – the entire market is worth less than Apple. Generally, it won’t really do a lot to affect the economy. A few people getting minted on NFTs isn’t going to change the world.
The main takeaway is that less people are likely to HODL than they do during positive times, when we have a strong economy and sensible governments. Whether you see that as an opportunity to “buy the dip” or not is entirely up to you. Just please do your research. Be a bull or a bear sensibly. You have to in this economy.