Traditional stock markets are currently suffering their worst losses in over 8 months and this past week the Dow Jones Industrial Average fell by a whopping 1400 points. Considering it’s been ten years since the 2008 financial crisis (which was coincidentally ten years after the 1998 financial crisis), one would be forgiven for expecting the worst.
This time, however, things are different.
Cryptocurrencies represent a brand new asset class that didn’t exist ten years ago. Never before has such an asset class existed during a financial crisis, so one can only speculate on how it will be affected. It seems likely though that crypto’s disconnection from traditional stock markets put it in a good position as a hedge or safe haven during financial turmoil.
Currently, the crypto market is down $16 billion this past week, indicating a potential knock-on effect from tumbling U.S. stocks. The Dow, on the other hand, has begun to make a minor recovery, gaining 287 points back on Friday. The U.S. trade war with China is ongoing, however, so it’s likely when U.S. markets open tomorrow sharp declines may resume as investors continue to lose confidence in tech stocks.
In many ways, crypto assets are not in a mature enough position to act as a safe store of value yet. While the technology behind the industry is technically sound to a relatively high degree, it is also plagued by hacks, thefts, and market manipulation. Admittedly, offline hardware wallets offer an almost 100 percent safe method of storage but they are of no use if the price of the asset stored on them continues to decline due to investor uncertainty.
Cryptocurrency exchanges need to prove themselves reliable if they have any hope of attracting the interest of investors fleeing a plummeting traditional stock market. Many industry professionals believe Bitcoin has finally bottomed and will begin to rally again soon, and investor Jacob Canfield recently outlined a detailed analysis of just how the crypto market could actually benefit from a stock market crash.
The question is – is the industry mature enough to take that next step?