As Global Economy Approaches Crisis Level, Bitcoin Could Be the Answer

Like clockwork, the International Monetary Fund (IMF) has once again slashed its outlook on global economic growth, citing trade tensions, tighter monetary policy and Brexit as the main pain points. The synchronized slowdown in global growth has presented investors with a conundrum: continue to ride the bull market or shift focus to a more risk-adjusted profile. Cryptocurrency may offer the best of both worlds now that the market appears to have turned a major corner.

Downgrading the Downgrade

On Tuesday, the IMF said the world economy will expand just 3.3% this year, down from the 3.5% it had forecast in January, which was also a downgrade. As Bloomberg noted, that’s the worst outlook since 2009, when the global economy was in the midst of a generational crisis.

“The balance of risks remains skewed to the downside,” the IMF said in its report. “Failure to resolve differences and a resulting increase in tariff barriers above and beyond what is incorporated into the forecast would lead to higher costs of imported intermediate and capital goods and higher final goods prices for consumers.”
It added:

“Higher trade policy uncertainty and concerns of escalation and retaliation would reduce business investment, disrupt supply chains, and slow productivity growth. The resulting depressed outlook for corporate profitability could dent financial market sentiment and further dampen growth.”

A sharp downward revision for advanced economies was the main contributor to the revised outlook. United States’ economic growth is projected to fall to 2.3% this year from 2.9% in 2018. The euro area is expected to grow just 1.3% after expanding 1.9% in all of 2018. The United Kingdom, Canada and ‘other advanced economies’ are also forecast to slow from last year.

China’s growth pace will likely slow to a new three-decade low this year. The international lending institution expects Asia’s largest economy to grow 6.3% in 2019 after it expanded 6.6% in 2018.

Crypto as a Non-Correlated Asset Class

For all the criticism lobbed at bitcoin last year, the largest cryptocurrency continued to trade at near-zero correlation with stocks. In a global economy teetering on crisis-levels, that’s a highly attractive value proposition for investors. Non-correlation doesn’t mean inverse correlation; rather, it means bitcoin tends to move independently of other financial markets.

There’s some evidence that bitcoin and stocks were slightly correlated during the tail end of the bull market, likely as a result of novice traders buying and selling both asset classes in unison. Overall, though, non-correlation is the norm, not the exception.

Now, within the cryptocurrency universe, bitcoin and altcoins are strongly correlated, but even that has weakened considerably in recent months. Bitcoin still exerts strong gravitational pull on the broader market, but several major altcoins and tokens are trading on their own merits regardless of what BTC is doing. These include EOS (EOS), Litecoin (LTC), Binance Coin (BNB) and several of the smaller-caps like VeChain (VET), NEM (XEM) and Tezos (XTZ), among others.

Back in December, The Wall Street Journal reported that bitcoin was exhibiting stronger correlation with gold, leading analyst Paul Vigna to conclude that it was behaving more like a traditional asset. This was likely caused by the influx of money from traditional investors who increasingly view bitcoin as a digital safe haven. Bitcoin also exhibited correlation with the CBOE Volatility Index, commonly known as the VIX, which tracks investors’ expectations of volatility over the next 30 days.

Despite these brief periods of correlation, bitcoin continues to exhibit unique price independence relative to other asset classes. The cryptocurrency has gained nearly 39% this year and has not followed stocks, commodities or the VIX in any meaningful way. As the global economy enters an extended period of instability, loading up on an asset that behaves independently of other assets can be a considerable advantage.

Bitcoin and the broader cryptocurrency market have turned a major corner in recent months, offering compelling signs that the worst of the bear market had passed. As a whole, the crypto asset class has recovered more than $80 billion from the December low. Retail traders are also beginning to take notice, as evidenced by the upsurge in Google search results for terms like “bitcoin” and “cryptocurrency.” Read more: Bitcoin Forges Forth as Price Clears $5,300, Crypto Market Hits Yearly High.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi