Could bitcoin trigger the next recession?

Given markets' massive appreciation in 2017, let alone the fact that this bull market has been around for practically eight years, investors are starting to wonder what will trigger the next recession. Will it perhaps be caused by the Fed raising rates too quickly? How about mounting geopolitical risks? The all-too-famous bitcoin cryptocurrency might be the catalyst.

Given professionals' bearish stance on bitcoin, the newly offered futures contracts give them a chance to short bitcoin, or bet against it, selling futures contracts, and profiting from a bitcoin price tumble. This could wreak havoc on retail investors especially, who have traded bitcoin and even hoarded the coins for "apocalypse scenarios" for years. However, this downfall could affect Wall Street also.

Many firms have faith in bitcoin, and will likely participate in bitcoin futures, taking a bullish stance. When this bubble bursts, those firms will take a hard hit.

So, what does this all mean for Wall Street and the public? There are really two scenarios that could happen here. Wall Street will take bearish stances on bitcoin and short the futures contracts, potentially giving rise to the burst of the bitcoin bubble, and greatly harming retail investors who have held bitcoin for years.

Scenario 2 might be that Wall Street takes a more bullish stance on bitcoin and pushes prices even further skyward. Tides will change eventually, and a disastrous collapse could ensue. This collapse will harm Wall Street as well as retail investors.

This would likely cause a subsequent collapse in other financial markets, namely equities, while Wall Street firms try to claw back cash.

Could bitcoin be the next Tulip Mania? Very likely. Could bitcoin be the next Apple Inc.? Doubtful.

Jon Stehlik

Wheaton