Will the Economic Anxiety Damage the Crypto Markets?

It’s been a very tumultuous year in the world of global finance. The overall economic indicators show that we’re heading for a recession if we are not within one. There’s also a cost of living crisis that’s affecting the day-to-day lives of almost everyone.

With all of this anxiety about the economy, some markets are getting hit more than others, as every investor is looking for cuts to make. This article will outline how the issues we mentioned will affect the crypto markets.

Banking Crisis

The pandemic has changed the real estate market, and in turn, a crisis in the real estate market is affecting the banking sector. The value of commercial real estate has dropped significantly with the introduction of work from home, and chances are offices will never be as needed as they once were.

China’s most prominent real estate company, Evergrande, has also plummeted. The real estate giant was ordered to liquidate by a Hong Kong court after it failed to repay its debt. The real estate market is usually considered safe and conservative since the value of such assets usually keeps growing in the long run.

Layoffs

Some industries have started laying off their workers in 2023. It’s happening in the tech world and in many startups. Many of the businesses working in these fields rely on being able to borrow money with very low rates. Now, when the problems in the banking sector are making it more difficult, the employees are starting to feel the crunch.

Some tech companies have stated that they are firing as much as 19 percent of their workforce. The layoffs have started in the sectors that aren’t essential to production, but there’s also scaling down in the main sectors as well.

The State of Crypto

The changes in the global markets are happening while the crypto industry is booming. There’s a big push for wider adoption of cryptocurrencies across all industries. Bitcoin and crypto gambling sites were among the first to accept digital currencies as payment methods, but the adoption is now much wider.

Traditional financial institutions are accepting crypto payments, and so are some luxury brands. Crypto gambling companies have also sponsored sports, entertainment, cultural, and charitable events.

This contradiction has led many to ask if crypto markets will be affected by the otherwise bad economic trends.

The Introduction of ETF

Another significant milestone for Bitcoin investors came a few weeks ago. At the end of January, ETFs based on Bitcoin were introduced after a long and complicated approval process. ETFs are similar to mutual funds because they can also be traded on the stock market.

The introduction of ETFs based on crypto was an important milestone because it allowed investors to purchase Bitcoin without buying coins directly. It goes to show that cryptos are now a part of the traditional financial market. Bitcoin won’t be the only currency that will introduce its ETFs.

More Regulations

Now that cryptos are widely accepted, the government is also looking for ways to regulate the industry further. It can be a good thing because it brings more security and makes the market safer to invest in. At the same time, many who have gotten into crypto have done so because it’s not regulated like traditional markets are.

It’s already noticeable in some industries that have introduced the “know your customer” laws. These require the users to provide an ID to use a service, meaning cryptos can no longer be used anonymously.

Will the Changes Affect the Crypto Industry?

For many, Bitcoin is seen as an investment that is supposed to increase in value over time rather than simply a currency to use to buy and sell products and services. The changes in the economy overall may lead some to reconsider investing in crypto.

It’s common for investors to stay clear of volatile markets during the time of economic downturn. The middle-class investors stop investing altogether, as they have less disposable income to spread around different projects. It may also happen with crypto, especially if the bad indicators continue into 2024.

Crypto as a Hedge against Inflation

Some investors hold the opposite view – that the changes in the markets overall can only strengthen Bitcoin. That’s because Bitcoin isn’t affected by government actions and, therefore, isn’t affected by inflation. Therefore, buying and holding Bitcoin while the rest of the economy is in bad shape can serve as a hedge.

This may have been the case a few years ago. However, now that the crypto markets have become intermingled with traditional finance, chances are crypto will become volatile as a result of the problems in the economy overall. This is especially the case with ETFs since that’s where crypto and traditional finance are the closest.

Bitcoin Predictions

There are already many predictions about how well Bitcoin will do in 2024. They take into account the changes in the overall economy, but also the rising adoption levels and the introduction of ETFs. In general, the predictions are optimistic for Bitcoin, and it’s supposed to be a good year to invest in it.

This includes Bitwise’s forecast that in 2024, the price of Bitcoin will surpass $80,000. For the first half of 2024, at least, institutional investment in Bitcoin will continue to be the main focus, according to Coinbase.

What to Look for?

Still, if the markets keep going downhill for a while, the effects will spill over to Bitcoin. This doesn’t mean that the value of Bitcoin will go down all of a sudden or at all. Instead, there are other signs that investors should be on the lookout for.

The first sign that things may be going wrong for the crypto market will be the decreased level of trade volume. If you notice that fewer investors are getting into crypto, regardless of their value, it may be the time to get worried and change things up.

Diversification

The best way to go when it comes to investing in crypto works regardless of how the overall economy is doing. Diversification is the best way to mitigate the risks involved. This goes for diversifying between crypto assets and traditional finance assets so that not all of your investments are tied to a volatile industry such as crypto.

At the same time, it’s equally important to diversify between different cryptos so that investors aren’t dependent on the value of Bitcoin and other big cryptos. There are always altcoins to invest in, and mitigate the risk by not keeping all of the eggs in one basket.

Conclusion

Many problems with the economy have been building up for the last couple of years. These are noticeable at all levels and have complicated origins, some of which are beyond the control of any business or government. Many are starting to wonder if the changes will also affect crypto markets.

All the experts claim that it’s going to be a good year for Bitcoin and crypto in general. There’s much wider crypto acceptance, and ETFs have brought Bitcoin closer to traditional financial markets. Chances are that the crypto markets and the crypto gambling sphere won’t be affected by the changes in the economy.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes