Bitcoin, which debuted in January 2009, coincided with the start of what became a decade-plus bull run on Wall Street.
As the cryptoeconomy grew alongside a bullish U.S. stock market, mainstream investors began diversifying into risky assets like cryptocurrencies. But what happens if we officially enter a bear market?
Such a scenario would take the nascent crypto industry into unexplored territory, yet it's becoming a reality as coronavirus-related fears push us towards bear market territory.
Top Indexes Tilt Bearish
Following major sell-offs on March 9th, major U.S. indices like the Dow Jones, S&P 500, and Nasdaq rallied after the Trump administration proposed an economic relief package for coronavirus-hit sectors.
But on March 11th, the World Health Organization's pandemic declaration sent those same indices spiraling downward. toward the bearish brink .
The Dow Jones fell to 23,553.22 that Wednesday, marking a 6% daily drop and a 20% plunge from its February high of 29,551.42 — signaling its descent into a bear market.
Similarly, the S&P 500 and Nasdaq didn't lag far behind. The S&P closed at 2,741.38, down 19% from its last peak, while Nasdaq fell to 7,952.05, also a 19% decline.
Crypto Feels the Bite
A key effect of more traditional investors venturing into crypto is that digital assets occasionally mirror stock sell-offs during risk-off periods.
Alas, as was also seen on Monday , a new wave of sell pressure Wednesday witnessed a sell-off in the crypto markets, as jittery investors sought better security.
Bitcoin showed resilience, hovering around $7,845 (-1.65%) for much of the day. Meanwhile, Ethereum dropped to $190 (-6%), XRP hit $0.206 (-3.25%), and Binance's BNB fell to $16.23 (-5.2%).
A Black Swan Event?
The discussion has revolved around potential risks that could strike the cryptocurrency sphere unexpectedly. black swan events Fears often focus on unforeseen flaws in code or economic attacks that could derail the crypto landscape.
Such catastrophic events could significantly set back or permanently change the cryptoeconomy's path. Could a lengthy bear market and global recession pose similar threats?
If these dynamics unfold, interest and development in crypto might diminish for an extended period.
Certainly, the most formidable players — major companies, massive networks like Bitcoin and Ethereum, and leading projects like MakerDAO and Compound — are best positioned to endure downturns. Binance and Coinbase Smaller enterprises could face significant challenges. Investors who remain might gravitate towards major assets like BTC and ETH or leading stablecoins like Dai and Tether, while lesser cryptocurrencies could suffer substantial losses.
While smaller projects could still survive during a global recession, the conditions for thriving would undoubtedly be harsher. The entire ecosystem has the potential to rebound post-recession, though progress might be sluggish in the meantime.
William M. Peaster, a seasoned writer and editor, specializes in Ethereum, Dai, and Bitcoin within the cryptosphere. He has been featured in Blockonomi, Binance Academy, and Bitsonline. He enjoys following developments in smart contracts, DAOs, dApps, and the Lightning Network, and is learning Solidity. Connect with him on Telegram at @wmpeaster.
