Recession, BTC and the Crypto Market: How Do They Affect Each Other?
“The US economy is worse off than we thought”
There are growing voices and signs that the US is headed for a recession, with some confident that it is already in it. A recession exists, to put it succinctly, when the signs on the markets and in the economy are too red for the bears. Technically, a recession is when the economy is down for at least two quarters in a row compared to the same quarter last year.
And indeed, things are looking bleak overseas. At the end of the second quarter, the S&P500, an index that tracks the shares of 500 of the largest listed companies, recorded its worst development since 1970 – even including the global economic crisis of 2008. The stock markets are giving way and things are looking bleak for BTC and the like at the moment. The toads call louder than they have for a long time. One of many who gets to the heart of the matter: Anthony Pompliano. The BTC expert recently announced in a video:
The US economy is worse off than expected.
However, “Pomp” is not alone in his assessment. Tesla CEO and Dogecoin shill Elon Musk also said in early June that he had a “super bad feeling” about the economy have. In an internal email, Musk asked his entourage to pause all new hires for the time being.
Star economist Nouriel Roubini aka “Dr. Doom” blew a very similar pipe, albeit with more fervor. Opposite to Bloomberg he already said on June 21 that the US economy is already very close to a recession.
The situation in Germany does not look particularly good either. Jens Südekum, Professor of Economics, sees one severe recession ahead if Russia should turn off the gas supply. Companies would have to shut down production or stop it completely, and economic output would be significantly weakened.
What a Recession Mean for BTC?
The BTC price has shown a strong correlation to the US stock indices Nasdaq100 and S&P500 in recent months. In general, BTC is often considered a risky asset that investors sell in difficult market phases.
Even BTC cannot escape a recession. Cryptocurrencies are still considered high-risk assets for most investors. In uncertain times, these are reduced and reallocated to relatively safer investments such as value stocks or bonds with a high credit rating. Retail investors in particular, who have to accept real losses in purchasing power as a result of high inflation, are inclined to forgo investing in BTC in order to meet everyday expenses and long-term liabilities (real estate loans or similar). The situation is made more difficult by rising key interest rates, which have a negative impact on assets with no cash flow.
Further dislocations in the international capital markets could see BTC testing new yearly lows. In short: If there is a recession, BTC & Co. are likely to be badly hit again.
How BTC will behave in a recession in the longer term cannot yet be estimated with certainty. Nevertheless: The crypto market has already experienced a few crashes, BTC was not declared dead once. Because: Nothing has changed in the fundamental value proposition of BTC and blockchain technology. Anyone who listens carefully to when the guns are thundering can prove they have a good nose, especially in a recession.
As bad as the macro picture and short- to medium-term outlook are, it is important to remember that prices have already corrected sharply. Not the least favorable situation for investors with a long-term investment horizon and a soft spot for anti-cyclical investing.