Crypto pendulum swings back to ‘real economic value’: Can Bitcoin price survive a recession?

(Kitco News) After briefly touching $17,000 over the weekend, Bitcoin is back above $20,000. But can the price outlook pick up as calls for recession grow and inflation continues to dominate market headlines? Stablecorp CEO Alex McDougall chimes in.

When looking at price predictions for the rest of 2022, investors need to separate the crypto tech angle from the price angle, McDougall told Kitco News.

“The tech side of Crypto will perform extremely well in a recessionary environment. And especially if the recession is bad and causes confidence to fluctuate. Remember, crypto was born out of the crash of 2008,” he said. he declares.

On the other hand, McDougall doesn’t see Bitcoin price doing so well in a recession. Here’s why: “I don’t think there will be a huge retail surge or flight to Bitcoin in a recession. But at the same time, the institutions that eventually got on board aren’t selling,” he said. -he declares. “But if there’s a risk-like event where that version of finance no longer works, that’s when you’ll start to see real rotation.”

During stagflation, a period described by slowing growth and high inflation, Bitcoin is likely to fluctuate within a price range. “I don’t think it will completely collapse in a recession. Instead, it will consolidate for the next up cycle,” McDougall noted.

However, if the US economy enters a period of stagflation accompanied by a continued rotation of risky assets, the crypto space, including Bitcoin, could be more painful, noted the CEO of Stablecorp.

“Everyone has been running around like chickens with their heads cut off for the past year, chasing gold coins that have fallen from the sky,” McDougall described. “The pendulum has swung back to where the real fundamental economic value is, and instead of swinging forward into the future, you see many projects and companies refocusing.”

Despite the crash, there is still enough capital in the space to push these real-value crypto projects forward, he added.

“There’s billions of dollars that go into venture capital funds, but a ton has gone back to ‘let’s take a deep breath, what’s the core, the real world thing you’re doing, how does blockchain help? it really what is the fundamental value of what you are building?

On the tech side, McDougall is a long-term bull as he sees it overtaking the future of finance at some point. “The technology has been generally accepted by the world at large, because that’s where the future will go at some point, whether it’s now, in five years, ten years or 15 years. And whether it’s led by government or by industry, there will be blockchain in the future,” he said.

Going forward, the dueling narratives of crypto will continue to push prices in different directions.

“Crypto is an entirely different fundamental value proposition than equities. Everyone understands how we value equities. We might wonder if it’s that discount rate or that bear market prediction. In crypto, we don’t have an aligned fundamental value thesis,” McDougall explained. “We’ve tried a bunch – digital gold is money, PQ = MV.”

These narratives often drive prices, and the latest market driver has been this dual narrative that crypto is seen as a tech stock, but also as a risk asset and an inflation hedge.

“So you end up with this crazy buyer-based volatility driving the narrative,” McDougall said. “In an industry as new and story-driven as digital assets, there is always room for more short-term pain.”

Further price volatility will be hard for the crypto industry to swallow, as it would likely reveal further signs of contagion effects following the collapse of stablecoin TerraUSD in early May. Additionally, it would highlight challenges with centralized lending platforms and Ethereum staking liquidity services, McDougall pointed out.

“[But] whenever digital assets move, they usually move significantly in both directions. When there are specific, targeted events like this, it doesn’t change our macro view of a future where adoption grows exponentially from today and forms an important part of a more efficient, transparent and open,” he said.

For bitcoin, specifically, McDougall pointed out that his payment currency narrative is over. But his store of value thesis and bitcoin anchoring the entire industry is just beginning. “You have to have some of it in your wallet,” he added.

McDougall spoke to Kitco News on the sidelines of the Consensus 2022 conference held in Austin, Texas from June 9-12. He also contributed additional commentary following a meltdown in the crypto space after the conference.

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