The Looming Financial Crisis: What Will Happen To Bitcoin?
Tags: Financial Crisis, Cryptocurrency, Finance, Financial Crisis Bitcoin, Bitcoin

Research Data

In order to back this post with facts, I would like to list below the different assets, used in the charts that follow, alongside a brief description and the reason behind their selection.

The assets

GOLD (XAUUSD, Blue)

Gold price is widely followed in financial markets around the world. Gold was the basis of economic capitalism for hundreds of years until the repeal of the Gold standard, which led to the expansion of a fiat currency system in which paper money doesn’t have an implied backing with any physical form of monetization. Gold quoted in US Dollars, which is the common yardstick for measuring the value of Gold across the world.

Besides the fact that Bitcoin has been numerous times called ‘digital gold’, gold is vastly considered a safe heaven during economic turmoil. It usually has an inverse correlation against the United States Dollar (USD) and is an excellent asset to track.

Standard & Poor’s 500 Index (SPX, Orange)

Standard and Poor’s 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941–43 base period.

The Standard & Poor’s 500 Index (S&P 500) is the most commonly used benchmark for determining the state of the overall (US) economy and makes perfect sense to be included in any performance comparison chart.

Australian Dollar vs United States Dollar (AUDUSD, Cyan)

The currency pair tells indicating how many Australian Dollars (the quote currency) are needed to purchase one United States dollar (the base currency)

This ‘major pair’ is good comparison candidate due to the fact that during a euphoric market, ‘risky currency trades’ do well, as they usually have higher interest rates (which implies higher growth) and are directly linked to commodities. Australia is the largest coal and iron ore exporter, and therefore the ‘plight of its currency is heavily dependent on commodity prices’.

VanGuard FTSE Emerging Markets ETF (VWO, Brown)

This ETF invests in stocks of companies located in emerging markets around the world, such as China, Brazil, Taiwan, and South Africa. It has high potential for growth, but also high risk; share value may swing up and down more than that of stock funds that invest in developed countries, including the United States.

iShares 20+ Year Treasury Bond ETF (TLT, Green)

This ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years.

Generally speaking, bonds are a ‘safe play’ during recession as interest rates decrease whereas bonds value rise. However, not all bonds are made equal. The ‘safe play’ applies to bonds with a good credit rating, such as, Triple-AAA Corporate Bonds. This ETF consists of U.S Treasury Bonds which have a very good credit rating.

The charts

The 3 charts below (with different timeframes), show a snapshot of the asset percentage change over a period of years which I will be referring to in the following sections.