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The coming recession is going to hit crypto, but not as hard as you think

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A recession is yet to start, but the estimate of numerous economists is that it will soon come. The United States has the largest economy in the world, and this was contracted in the first quarter of the year by 1.6 percent, but if the contract fails somehow in the second quarter, a recession is predicted to occur in 2023 by a growing number of economists.

Obviously, this is a challenging time for the global economy as inflation is growing to 40-year highs, and a threat is coming from central banks on a series of rate hikes. Besides, it’s quite not a good thing for the crypto market that prices are going down when economic activity shrinks.

Nevertheless, there is a mixed opinion on if a severe recession will be observed in the months or years ahead. It is also mixed on if recession would impact major crypto assets significantly. The argument explains that the prizes of crypto assets have no correlation with the economy of the world so much as stock markets. It could be affected again in case the rate increases stop and inflation subsides.

A recession is already after cryptocurrency

There seems to be a unanimous opinion by numerous analysts and economists that the United States and several other developed economies are experiencing recession already, based on the fact that a recession is technically defined as two consecutive quarters of negative growth.

The author of “The Crypto Trader” and a crypto asset analyst, Glen Goodman, explained that high inflation is responsible for the squeeze on the disposable incomes of people, leading to huge negative implications on stocks and crypto markets, and may have already caused the US economy to fall into recession.

He added that the survey of consumer confidence conducted recently is revealing the worst readings for years to come, to the extent that people have started experiencing negative outcomes and minimizing the way they invest and spend.

Even though it is generally agreed that the economy is shrinking at present, the role of inflation & rate hikes, and a steep withdrawal of fiscal support has been highlighted by several commentators.

Mike McGlone, Bloomberg Intelligence Senior Commodity Strategist, showed that in 2022, the result is the hangover from huge asset price bubbles backed by unprecedented liquidity, monetary, and fiscal. And that it’s removed at a breakneck pace, as shown by the up to 35 percent drawdown experienced in the Nasdaq 100 Stock Index (a modified stock market value-weighted index), including the greatest rate hike in a meeting dated back to 1994.

According to Mike, there is no given prolonged recession. However, the current slowdown is more likely to function as a catalyst for a contraction of the cryptocurrency market.

Speaking with Cryptonews.com, he said that compared to reversion in asset prices, the recession is less certain, and the available crypto listing (about 20,000) on CoinMarketCap reveals the challenges with ease of entry and excess supply– “price headwinds.”

He further asserted that he would be expecting beneficiaries such as Ethereum, Bitcoin, or Stablecoins, to remain untouched and BTC to proceed with how it’s turning into the benchmark of virtual collateral in a world that is moving towards such a direction.

How bad can things get?

For advanced economies, there is little doubt that they have started contracting. But analysts are not totally convinced that the prevailing challenges will stay for long, if not in an outright recession. With this, there is hope that the present bear market may stop as early as possible.

Glen Goodman showed that for the near future, there is hope due to the commodity prices that are plummeting. Vital commodities such as corn, wheat, cotton, copper, gas, oil, etc., are already moving below their highest prices,  which should, in a way, help deal with the inflation soon.

Over the past few weeks, it’s apparent that the prices of oil have been experiencing a repeated fall, being negatively affected by recession fears. So some self-corrective mechanisms may be instigated by this and lead to more economic growth and activity through reduced prices.

Goodman explained that it could hopefully result in a rapid recovery of the US economy, but people may feel concerned about how long the relief will last. He added that people are now in an extremely volatile economic environment, making looking further with confidence nearly impossible.

The recession could stay for more than a few quarters, but Mike McGlone showed that it wouldn’t be deep and severe. This is because it would be part of how the economy would be rebalanced away from too much liquidity.

It’s the expectation of McGlone that gold, US long bonds, and BTC will become top performers. However, he supports that the road will feature bumps as the economy stabilizes gradually.

What is the exit strategy

The crypto market will definitely benefit if economic performance improves. And Goodman showed that what is required is to improve the stock performance. He told Cryptonews.com that returning to economic growth to start the cryptocurrency market is not necessary, but what is needed is a recovery in the Nasdaq index of tech stocks.

The prediction of Mike McGlone, regardless of when economic growth will return, is that BTC will still do better compared to other assets, especially when we move back to a low-inflation environment. But he is not as hopeful about most other virtual currencies.

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