Editor’s ChoiceWill Bitcoin Survive during Recession?

Will Bitcoin Survive during Recession?

There’s a lot of uncertainty throughout the bitcoin market that will bitcoin survive. We continue to watch the price fluctuate right around $20,000. But at the same time, we see the federal reserve is raising interest rates. Everyone wants to know how will bitcoin survive during its first true recessionary period. 

Let’s jump right in and start looking at the bitcoin network itself. We see that bitcoin’s price is trading just above $20,000 as of yesterday up about 1.68%. If we look at the network we can see that the market cap of bitcoin now sits just below 400 billion dollars. The inflation rate is just under 2% and more than 90 of the 21 million bitcoin are now in the circulating supply.

The real exchange volume for bitcoin is around 4.6 billion dollars in the last 24 hours. The miners have been paid just under 19 million dollars to continue to secure the bitcoin network. We see that bitcoin is down 70% since the all-time high of 69 000 back in November. If we then take a look bitcoin is down 36% over the last 12 months that’s why everyone is thinking about can bitcoin survive in this situation. Gold and the s&p are down as well but over any other time period, two to ten years bitcoin has absolutely dominated these other assets.

Bitcoin closing history shows us that for 547 days it’s traded above where we are today. If you bought bitcoin at any point over 89% of bitcoin’s life and held it till today you would be in profit. We can see that bitcoin’s compound annual growth rate compared to gold, s&p 500, NASDAQ, and tilt the compound annual growth rate of 117 percent is absolutely destroying these other assets.

That five-year sharp ratio of 1.05 also means that bitcoin continues to be a positive addition to many people’s diversified portfolios. Now if we just look at the bitcoin network it tells us one story.

Glass Node data shows that the miners are very pro-cyclical forces in the bitcoin market. They hold their bitcoin in the bull market and place orders for more machines that have a delay from when they were bought to when they’re plugged in for a variety of reasons. Including manufacturing and shipping times and building out shelf capacity for the machines to operate.

Due to this hashrate’s cyclical peak has historically lagged the peak in bitcoin’s price. Bitcoin means the hash rate is the 14-day moving average. The machines continue to be plugged in at an aggressive rate throughout late 2021 and into early 2022. But the bitcoin spot price has declined by roughly 70% since then. 

So there’s a new variable adding to the compression which is the increased energy cost driven by supply chain issues. Will’s been tweeting about this for a while if we go back to June 18th.

What we see is that lower bitcoin price higher hash difficulty and higher energy costs have put serious pressure on miners’ margins. Hash price is now its lowest since October of 2020. The hash ribbons have crossed indicating machines unplugging and miners sending bitcoin to exchanges. Then we can go take a look at the hash ribbon and what we see is the juxtaposition of the 30-day and 60-day moving average of hash rate to create a proxy for momentum moves in minor dynamics.

Related: Why Crypto Will Rise Again After This Crash

Glass node data shows that the miners were selling some of their bitcoin it’s cooled off a little bit but that doesn’t mean that they won’t pick up again. The public market has punished these bitcoin miners and the thought process is that if bitcoin’s price was able to recover these miners likely would follow as well. It tends to just be higher beta bitcoin exposure but history may only serve as a guide and doesn’t necessarily predict the future.

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