Bloomberg Issues Financial Crisis Alert: Could Bitcoin and Altcoins Benefit?

As Bloomberg raises alarms about a potential financial crisis, market analysts are debating whether cryptocurrencies like Bitcoin and altcoins could serve as a hedge or even capitalize on the turmoil. Historically, Bitcoin has been viewed as a ’digital gold’ during economic instability, while altcoins often exhibit higher volatility in such conditions. With traditional markets under pressure, investors may increasingly turn to crypto assets for diversification or speculative opportunities. However, regulatory responses and macroeconomic factors will play a decisive role in determining the sector’s performance amid broader financial stress.

A major financial crisis may benefit Bitcoin and altcoins

A recession or a financial crisis would hurt Bitcoin (BTC), altcoins, and the stock market initially as the fear rises. It would also lead to a higher unemployment rate in the economy.

However, history shows these risk assets often perform well after major crises due to Federal Reserve and government interventions. The Fed slashed interest rates to zero during both the global financial crisis and the COVID-19 pandemic. It then implemented quantitative easing, printed money, and injected liquidity into the economy.

In parallel, the federal government provided a $700 billion bailout to banks during the GFC and issued trillions in stimulus checks during the pandemic. These actions helped trigger a strong rally in both stocks and cryptocurrencies.

U.S. indices like the S&P 500 and Nasdaq 100 entered bull markets after the GFC. Similarly, Bitcoin, altcoins, and equities soared following the COVID-era interventions, before retreating when the Fed began hiking rates in 2022.