Cryptocurrencies are a good investment during a recession because they are not correlated with the stock market.
Inflation and economic recession are two of the things that investors dread the most. Both can erode the value of investments and cause financial hardship. Many investors try to hedge against these risks by buying assets that are not correlated with the stock market.
One of these assets is cryptocurrency. They are not correlated with the stock market because they are not reliant on the traditional financial system. This means cryptos will not necessarily follow suit when the stock market crashes. Yet, crypto volatility saw only 6% of investors buy crypto to hedge against the recession in 2022, according to data from BanklessTimes.com.
Speaking on the data, BanklessTimes CEO, Jonathan Merry, said, “Most investors didn’t consider buying Crypto an excellent way to hedge against recession. The crypto market has been bearish in 2022, making investors slow down. Besides, the fear of the unknown engulfed the sector after Terra Luna’s crush. Most investors believe Crypto might be an easy way to lose their investment.”
Most investors reacted to the recession in a different manner. For instance, 20% of investors moved assets out of the stock market. Further, 12% went for gold, while 42% saw no need to hedge against recession.
How to Hedge Against Inflation
Diversification is a better way to hedge against recession. You should not put all your investment into one venture because you could lose money if the firm fails or lowers its stock price.
Having a diversified portfolio reduces vulnerability. If one firm underperforms, the gains from the others may make up for it, protecting your investment capital.
Inflation erodes the purchasing power of investments, making them worth less in the future. By investing in assets that are not as affected by inflation, you can keep your buying power constant.
Some of the best assets to hedge against inflation are cryptocurrencies, real estate, and gold. These assets have shown to retain their value or even increase in value when there is inflation.
Cryptocurrency is the Future
Despite its volatility, Crypto gives returns. The market will become bullish when the lower moments go, and investors will smile at the bank.
As the world moves towards a digital economy, those who get on the crypto train early will reap significant rewards.