Musk predicts an economic crisis in 2022. How can we prepare for the next possible crash?

On December 31, 2021, Musk responded to questions from netizens, saying, "Predicting macroeconomics is challenging. My intuition is that (the economic crisis) may occur in the spring or summer of 2022, but no later than 2023. "

A strong storm starts with a small ripple. Under the influence of the Federal Reserve's expectations of rate hikes, the crypto market has indeed been on a downward trend along with the stock market. The asset feast since last year's massive money printing seems to be really coming to an end, and pessimism is spreading widely.

Defense is one of the most important decisions. If an economic crisis really occurs in 2022 or later as Musk said, what impact might it have on the crypto market? In the turbulent crypto market, how should we, as ordinary investors, respond?

01
The "world currency" that emerged during the Bitcoin crisis

Let us turn our attention back to 2008. On September 15 of that year, Lehman Brothers, one of the five largest investment banks on Wall Street and owning huge commercial real estate, declared bankruptcy. This became the last straw that broke the camel's back . The first domino of the global financial crisis officially fell, triggering a financial tsunami that swept across all dimensions including the capital market and bank credit.

Banks are closing down and massive amounts of money are being printed. We ordinary people entrust our money to banks for safekeeping, but if they cannot be trusted, and even our monetary wealth is greatly diluted and deprived by unlimited money printing (the so-called "quantitative easing"), what can we expect?

It is against this uncertain backdrop that sparks begin to emerge:

On November 1, 2008, Satoshi Nakamoto released the Bitcoin white paper: "A Peer-to-Peer Electronic Cash System";

On January 4, 2009, Satoshi Nakamoto created the Genesis Block and received the first block reward: 50 bitcoins ( Bitcoin has been halved three times, reducing to 6.25 bitcoins per block );

On January 12, 2009, Satoshi Nakamoto sent the world's first Bitcoin transaction (the recipient of the transaction, Hal Finney, is considered one of the most likely Satoshi Nakamoto);

Interestingly, when Satoshi Nakamoto created the Genesis Block, he “engraved” a rather comedic sentence on it: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks ( This was the moment when the British Chancellor of the Exchequer was forced to consider a second move to ease the banking crisis ).

This is actually the title of the front-page article of the British Times that day, which introduced some details of the Bank of England's rescue of the market in the context of the global financial crisis in 2008. In fact, from this "performance art", we may also be able to get a glimpse of the significance of Satoshi Nakamoto's creation of Bitcoin:

It originates from the resistance against the wanton deprivation of people's wealth under "quantitative easing", and aims to realize the ideal of supranational global currency by technological means, so as to fight against hyperinflation and ensure the sanctity and inviolability of people's private property.

In 2012, Bitcoin showed the world the possibility of a "super-sovereign world currency". At that time, the Cypriot government planned to sacrifice the interests of depositors to obtain EU aid and freeze deposits above 100,000 euros to solve debt problems.

This caused great panic among ordinary people and strong doubts about the security of banks. Some people discovered that Bitcoin is independent of sovereign currencies, which made Bitcoin enter the international stage for the first time.

Of course, after more than a decade of growth, Bitcoin may no longer be just a single vision of "global currency":

Currently, users who buy and hold Bitcoin do not really use it as a currency for payment and transactions. Instead, they view Bitcoin as a value storage target with a consensus basis , similar to "digital gold" - a value storage method with better divisibility, portability and liquidity than gold.

Even so, with the recent sharp depreciation of the Turkish currency, the lira, there has been a surge in searches for Bitcoin and downloads of Bitcoin wallets in Turkey, which is very similar to what happened in Cyprus in the past: the spark is still burning.

02
Major crypto market turbulence events in history

However, Bitcoin, which originated in the global financial crisis in 2008, has also been tested by multiple crises in the 13 years since its birth.

Learning from history, here we review the performance of Bitcoin and crypto markets during past macroeconomic turmoil, and briefly review the most well-known "9.4", "5.19", and "3.12" events in the industry, and review together how Bitcoin and crypto markets performed during macroeconomic turmoil, and what historical laws are worth learning from .

• September 4th Incident

The "September 4th Incident" was undoubtedly a watershed in the industry, and the almost crazy wave of speculation in the country was directly put on the brakes.

On September 4, 2017, seven departments including the People's Bank of China, the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission, and the China Insurance Regulatory Commission officially stopped ICO financing.

As soon as the announcement came out, the prices of various tokens on the exchange fell all the way. Among them, various projects issued through 1C0 financing suffered the most severe decline, all of which have fallen below the issue price. The highest decline exceeded 90%, and there were even projects that took the opportunity to run away with zero prices .

Stimulated by the stories of people with assets worth millions, tens of millions, and even hundreds of millions, those who entered the crypto market with fantasies of making a hundred or a thousand times more money woke up and became the most vulnerable group of people at that time.

• 3.12 Crash

From 12:00 on March 12, 2020 to 12:00 noon on March 13, in just 24 hours, Bitcoin, which had been falling for a week , began to decline from $7,600, first falling to $5,500 and fluctuating .

Subsequently, the price continued to break through the support level, reaching a low of $3,600. The overall market value evaporated by $55 billion in an instant, and more than 20 billion yuan was liquidated across the entire network, accurately achieving the goal of "price halving".

No eggs are left unbroken when the nest is overturned. The sudden market cascade has caused a "river of blood" in the secondary market, especially in the context of widespread leverage by individuals and institutions. The inevitable chain liquidations have further led to a depletion of liquidity, selling, short selling, chain stampedes, and leverage killing leverage.

The domino effect caused by the "black swan"-style plunge eventually wiped out all the bulls in the market. The BTC price even fell below $3,800 at one point, hitting the recognized bear market low in 2019.

This tragic crash, which is enough to be recorded in the history of the cryptocurrency circle, has achieved a tragic "deleveraging" process under the market stampede of serial liquidations, and has maximized investors' panic, making it almost unstoppable .

• 5.19 Crash

May 19th last year was an unprecedented "disaster" for participants in the crypto market.

In a short period of time, China's computing power, which once played a significant role in the mining industry, disappeared. The cleanup of social media and the resulting market panic caused the market, which had been in a bull market for nearly a year, to experience an unprecedented evaporation of market value. Bitcoin once fell below $30,000, directly halving its highest point, and the entire crypto market was bleeding .

03
How to prepare for the next “darkest hour”?

Looking back, the "September 4th Incident" and the "May 19th Crash" were directional adjustments caused by endogenous factors in the entire industry, and the "March 12th Crash" was a liquidity crisis caused by the influence of the macro environment. These three extreme crisis events have conducted extreme stress tests on the entire crypto market from many aspects when the crisis comes .

And every "crisis" in the crypto market turns out to be a good opportunity in essence:

The despair of the "September 4th Incident" gave birth to hope. Three months later, the crypto market immediately started a magnificent bull market . This should also be the initial impression of many crypto industry practitioners on the bull market of the crypto market.

After the “March 12 crash”, the crypto market started with the “Summer of DeFi”, which ushered in a “Cambrian Explosion” that set a record in both height and breadth .

In the past six months since the “May 19 crash”, the domestic crypto market has accelerated its transition to Web3, and the domestic industry has entered a new stage of development;

In a nutshell, no matter what kind of unexpected crisis it is, only those who are prepared and have not been kicked out can enjoy the feast after the crisis.

Before the March 12 crash in 2020, Authur Hayes, CEO of the crypto derivatives exchange BitMEX, published a blog post predicting macroeconomic crises and turmoil in the crypto market. At the end he wrote: “Long live volatility, and stay healthy.”

This may be the best survival guide in today's ever-changing market: whatever does not kill us makes us stronger, so the way to deal with crises may be simple - ensure cash flow, live healthily, and always be ready to embrace the gifts of crisis .

Crisis is not necessarily an opportunity, but it is only an opportunity for those who are prepared. We must ensure that we are always on the same high-speed train as the rapidly developing crypto industry. Long crypto, short the world.