The Danger Of Liquidity Crisis For Crypto

The Danger Of Liquidity Crisis For Crypto

By reedyzzx | Crypto Education | 1 Aug 2020


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For so many years, a lot of people have been saying that cryptocurrencies are the anti-fiat and anti-economy. After all, it was born out of the 2008 global financial crisis. Its creator, Satoshi Nakamoto, had been saying multiple times on how the centralized fiat currencies had failed the hope of the people. The earliest supporters of Bitcoin were born out of ideology, not price speculation. 

Due to all these facts, cryptocurrencies have often been deemed as the ultimate solution against global financial instability. And then, come 2020. This is the year where cryptocurrencies have been finally put to the test, whether they are a good hedge against the current crisis or not. While many crypto pundits believe that cryptocurrencies have succeeded the test due to BTC price hanging around $9,300 and many altcoins enjoying the time of their life, we must be cautious and analyze further risks of what might happen in the near future.

Before we dive deep into the article, better if you understand the fundamentals of BTC. Click here to check it out.

What Happened In Early March Might Happen Again

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If you remember what happened in March, basically, Bitcoin price was suppressed to below $4,000 from above $9,000. It was a very large drop in a very period of time. Back then, many things changed for the very first time. COVID-19 finally hit many other countries outside China. Many of these countries also decided to announce lockdowns to try to contain the virus.

After the restrictions here and there, both the stock market and the crypto market went down so hard. Many people started to feel that it was the end of crypto. However, what happened next was that the crypto space recovered from that crash. From $4,000, it gradually recovered and kept going up to $10,000. Eventually (as we all know), BTC is becoming stable at around $9,000-$9,400.

However, despite the fact that crypto enthusiasm is high recently, many people started to think that what happened in early March might happen again one day. They believe that crypto recovery could only happen due to U.S. stimulus from the Fed that also helped the stock market to recover.

Liquidity Crisis Ahead Of Our Time

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If there’s one external threat that can potentially affect the crypto space, it’s the liquidity crisis. Yes, with many people losing money left and right, we might enter a worst-case scenario in the near future (Q3 and Q4 2020). While some people believe we have passed the worst of pandemic time, many analysts think that we are not there yet. 

With the threat of healthcare collapse in various countries, it looks like we are about to enter the era where cash will be king due to a lack of liquidity in various markets. And many people start to fear that this will also crash the crypto market once again just like in early March.

What Will Be The Opposite Scenario?

So what will be the opposite scenario of this “gloom and doom” that I predicted above? Well, the stimulus check. Yes, believe it or not, the second stimulus check from the U.S. government will actually change a lot of things. Just like the first one, the second stimulus package might prop up BTC price to above $12,000.

And this scenario is highly likely considering that the U.S. economy is still going worse despite many places have started to re-open in the retail sector. Even the U.S. president, Donald Trump, has admitted that things might get worse due to neverending issues with coronavirus and the fact that many people are starting to lose even more money as time goes by.

Conclusion

Don’t underestimate coronavirus. In some countries, things might start to reopen, but it doesn’t mean the worst has passed. Liquidity crisis and the ongoing recession will eventually affect the crypto market and it might crash crypto prices just like in early March. Let’s just hope we won’t ever get there.

Anyway, if you are interested in Bitcoin and cryptocurrencies, you might want to click here to learn more about them.

 


reedyzzx
reedyzzx

A Crypto believer and just want to share my opinion


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