Central Banks Can’t Deny Bitcoin amid Recession; Here’s Why

It is difficult for central banks and governments to deny and ban bitcoin amid a recession, according to prominent market analyst PlanB.

The Twitterati on Tuesday said the cryptocurrency needs to show a negative correlation with the macroeconomic market: such that the value of one variable increases while the other decreases. The next recession is a “stress test” for bitcoin, a non-sovereign asset, which has remained an uncorrelated one for the last ten years. PlanB believes the cryptocurrency could break the so-called correlation once the global market meltdown kicks-in.

Yes. Bitcoin has been an uncorrelated asset last 10 yrs, but the real test is a stress situation (recession), which we haven't had since 2008, but is around the corner. This is the reason central banks don't allow for much diversification: correlation break (goto 1) during stress

— PlanB (@100trillionUSD) September 24, 2019

“So if bitcoin indeed shows a negative correlation in the next stress event (recession), then it will become difficult for central banks and governments to deny and ban,” tweeted PlanB. ‘It would also trigger a lot of institutional demand.”

Correlation Grows

The comments came as investors digest the prospects of a global meltdown event during the next year. They believe that the rising geopolitical risks, coupled with the ongoing trade tension between the US and China, would push the market into recession. Findings from Absolute Strategy Research showed 52 percent of investors believe in the likelihood of such an event. It was the first time since 2014 the chance over a recession went above 50 percent.

"shaded areas indicate US recessions"https://t.co/E5kj2sjsVz pic.twitter.com/bORvDiUPyG

— PlanB (@100trillionUSD) September 24, 2019

Bitcoin, on the other hand, has practiced restraint against macroeconomic risks. The cryptocurrency surged by more than 150 percent between May and August, the period which saw an escalation in the US-China trade war and depreciation in the value of China’s renminbi. That led prominent analysts to prove a growing correlation between bitcoin and global markets. Ken Xuan, a data scientist at Fundstrat, said in his August note that investors were treating bitcoin as a safe-haven asset.

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