The Bitcoin blockchain launched in January 2009, and two months later Wall Street kicked off what since became an 11-year bull market and counting.
With that said, the rise of the cryptoeconomy has coincided with a historically productive, risk-on U.S. equities market, during which a growing number of mainstream investors have diversified into risk-on cryptocurrencies, too. But what if stocks officially enter into a bear market?
That’d be uncharted macro territory for the fledgling crypto ecosystem, but it appears in play as global concerns around the ongoing coronavirus outbreak have led to the edge of bear-market thresholds.
Top Indexes Tilt Bearish
After experiencing considerable sell-offs on March 9th, the top U.S. stock indexes — the Dow Jones Industrial Average (DJIA), the S&P 500 (SPX), and the Nasdaq Composite (NASDAQ) — rallied a day later after the Trump administration committed to an economic relief package for industries affected by the coronovirus.
However, on March 11th the World Health Organization (WHO) officially declared the coronovirus outbreak had become a global pandemic, the implications of which sent the aforementioned indexes toward the bearish brink.
Indeed, DJIA dropped to 23,553.22 on Wednesday, down 6 percent on the day and down 20 percent from the index’s February 2020 peak of 29,551.42. The 20 percent decline from its prior closing record indicates the Dow has officially entered into a bear market.
Similarly, SPX and NASDAQ weren’t far behind. SPX closed the day at 2,741.38, down 19 percent from its latest peak of 3,386.15, and the NASDAQ closed at 7,952.05, also down 19 percent from its last top. Accordingly, a wider bear market may be nearing as the prospects for a global economic slowdown grow.
Crypto Feels the Bite
One consequence of more mainstream investors diversifying into crypto in recent years? The digital asset space often experiences sell-offs during mainstream risk-off environments, just like stocks do.
Bitcoin held its ground relatively well around $7,845 (-1.65%) for much of the day. Other top cryptocurrencies sunk more intraday, with Ethereum’s ETH down to $190 (-6%), XRP to $0.206 (-3.25%), and Binance’s BNB to $16.23 (-5.2%).
A Black Swan Event?
Much has been said to date about the risk of black swan events negatively blindsiding the cryptocurrency ecosystem. But so far, the vast majority of these discussions have centered around the possibilities of unforeseen code flaws or economic attacks.
The danger, of course, is that such events could set the cryptoeconomy years behind or irreversibly alter its way forward. Might another deep multi-year bear market and an accompanying global recession pose the same threats?
It’s possible that if these dynamics came to pass, then interest and building around crypto could wane for years to come.
To be sure, those best suited to endure such a slowdown are the biggest entities — the biggest companies, like Binance and Coinbase; the biggest networks, like Bitcoin and Ethereum; the biggest projects, like MakerDAO and Compound, and so forth.
Those that could greatly struggle are smaller enterprises. Users and investors who do stay in the crypteconomy will likely flee to the largest assets like BTC and ETH, for example, or the biggest stablecoins like Dai and Tether, while the market capitalizations of smaller cryptocurrencies would undoubtedly be hit the hardest.
It’s not that it will be impossible for smaller projects to exist in the space if a global recession sets in, only that the conditions for operating would surely become tougher. And, of course, the entire ecosystem can come out swinging on the other side of a recession, but progress might be generally delayed in the interim.