One of the most common notions in the cryptocurrency space is that Bitcoin [BTC], the largest cryptocurrency by market cap, would be the one cryptocurrency which would benefit the most during the next financial crisis. This is mainly because normal citizens would lose faith in large financial institutions and place their faith in something that is completely under their control, without the need of a third party.
Bitcoin was touted as the coin that would liberate people of the shackles of the centralized systems and Erik Voorhees, the CEO of Shapeshift, a leading cryptocurrency exchange platform, spoke about this on his social media handle.
Recently, Narayana Kocherlakota, the Former President of the Minneapolis Federal Reserve, published an article titled ‘The Fed Needs to Fight the Next Recession Now’ on Bloomberg. Here, Kocherlakota stated that the “Fed would have arguably less firepower than in any previous recession”, taking into consideration its ability to increase growth was by decreasing interest rates.
The Former President explained that during the dot-com bubble burst in the 2000s, the Fed had to decrease their interest rate by over 5 percent in order to ensure that the unemployment rate stayed below 6 percent. However, the cut of over 5 percent during the housing bubble did not have the same effect, with the unemployment level rising in double digits, he stated. He further added,
“Now, it looks like the neutral interest rate over the next few years – the central bank’s starting point when the next downturn comes – could be as low as 2.5 percent. So unless it takes rates into negative territory, which seems unlikely, its response can be only about half as large as in the last two recessions.”
Further, Kocherlakota asserted that this was not the only option the Feds could opt for and added that there were other options such as buying bonds and mortgage-backed securities in order to “push down longer-term interest rates”. However, he stated that “many economists [including me] remain unconvinced that these actions had, or will have, much effect”.
To this, Erik Voorhees said on Twitter,
“There has never been a global recession since Bitcoin was created. Next time it happens, there is an escape hatch.”
Adrian Bye, a Twitter user, said,
“When you learn what happened with massive numbers of banks closing their doors during the great depression, and financial transactions freezing entirely.. it shows how critical crypto is.”
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Fall in Bitcoin’s market dominance may be correlated to the fortunes of the altcoin market
The trends set by virtual assets have always highlighted the cryptocurrency market’s inherent volatility and spontaneity. Prices lack symmetry and rarely exhibit consistent growth as different factors come into play to dictate an asset’s valuation.
At press time, the world’s largest crypto, Bitcoin, had stormed past the $11,000 mark and was consolidating to push for a surge over $12,000. The rest of the altcoin market however, apart from one or two minor hikes here and there, has been relatively quiet after collectively surging in the early part of the year.
At the beginning of 2019, a significant number of crypto-assets performed significantly well in a group, wherein most assets demonstrated a prominent hike in their values with little to minor price corrections.
A majority of tokens doubled their valuation until Bitcoin breached the $6,600 resistance. Subsequently, altcoins failed to keep pace as Bitcoin continued to test more resistance limits in the market.
At present time, Bitcoin enjoyed an unprecedented 62 percent dominance in the cryptocurrency market. As its dominance primes itself to climb over the 63 percent mark, many in the community speculate this could be red flags for the altcoin market.
Major cryptocurrency enthusiasts and analysts have stated that altcoins could significantly capitulate if it so happens. However, past events offer a sliver of hope for the altcoin market.
According to CoinMarketCap, the altcoin market has been significantly affected whenever BTC’s dominance has fallen. During the bull run of 2017, Bitcoin enjoyed a dominance of 65 percent and the global market cap hit a value of $402 billion. However, in January 2018, when BTC dominance plummeted, the global market cap peaked at around $710 billion. The dominance was down by half, whereas the global market cap had almost doubled.
A major reason for the same was money funneling into other altcoins after witnessing a shift in momentum from Bitcoin to the rest of the crypto-market. The present market situation may take a similar path once BTC’s dominance falls, opening the door for other virtual assets to take advantage of the scenario.
However, the present rise of BTC is backed by much more certainty than the bull run of 2017. Hence, a repeat of the January 2018 period may be unlikely, and will happen if and only the market sentiment shifts gears drastically towards altcoins.
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