UK Economy Setback And Bitcoin’s Resilience
Bitcoin was born in early 2009, in the aftermath of a financial crisis, but until this year it had never actually been through one.
Here’s how that played out: Bitcoin plunged in March as the coronavirus pandemic spread, then quickly bounced back as market optimism returned along with trillions of dollars of monetary stimulus.
Now, cryptocurrency traders may learn how bitcoin reacts as a new sense of pessimism sets in: Hopes that the global economy will snap back in a V-shaped recovery are diminishing quickly.
Figures released Tuesday by the U.K. Office of National Statistics showed that the world’s sixth-biggest economy’s recovery is coming much slower than analysts, including the Bank of England’s chief economist, had expected.The monthly gross domestic product grew just 1.8% in May, well below the 5.5% clip expected by analysts. The pace of growth represented a fraction of the near-25% drop in GDP since the start of the pandemic, the sharpest in three centuries.
The question for cryptocurrency traders is whether bitcoin would sell-off if the markets took another leg down, or if it’s more likely to rally due to expectations of fresh money injections from central banks and governments. Bitcoin is seen by many investors as a hedge against inflation, and unchecked money printing could theoretically reduce the purchasing power of major currencies like the U.S. dollar and the British pound.
"The economy was still a quarter smaller in May than in February", said Jonathan Athow, a deputy national statistician for the ONS. Lockdown restrictions meant key parts of the economy "emained in the doldrums, with a number of areas seeing further declines".
A second coronavirus wave this winter could put the U.K. economy under even more stress and cause long-term damage, analysts fear.