Amid growing concerns that the U.S. is entering a recession and geopolitical uncertainties roiling global markets, analysts are increasingly focusing on how these developments could impact Bitcoin and other cryptocurrencies.
The possibility of an economic recession, estimated by some as a “40% chance,” has sparked debate about whether Bitcoin can emerge as a haven for investors while altcoins face significant challenges.
Analysts from crypto exchange Bitfinex have expressed concerns that a global recession is indeed plausible, given current economic indicators and the recent actions of central banks.
Analysts noted that central banks have cut interest rates 35 times in the past three months, an aggressive move that surpasses the rate cuts seen in early 2024. They noted that this proactive easing is reminiscent of the 2009 financial crisis, which peaked with 76 rate cuts.
Despite some improvements in the inflation outlook this year, global inflation levels are expected to moderate slightly, while economic growth forecasts remain weak, according to Bitfinex analysts. Inflationary pressures also persist, with the International Monetary Fund (IMF) predicting that global growth will decline modestly from 3% to 2.9% in 2024. This combination suggests that central banks are taking action to stimulate economies to prevent further declines.
“The significant amount of speculative-grade debt maturing in the United States in 2024, combined with falling bond yields, indicates a stressful financial environment,” the analysts said, adding: “Investors' shift to safer assets and the decline in yields are classic recession indicators and a deterioration in sustainable economic growth.” It reflects a lack of trust.”
Bitfinex analysts suggested that the potential for an economic recession could have mixed effects on Bitcoin and the broader crypto market. On the one hand, Bitcoin can benefit from its “safe haven asset” status. In times of economic uncertainty, investors often turn to assets perceived as stores of value. Bitcoin, often referred to as “digital gold,” may see increased demand as traditional markets face volatility.
However, the outlook for other cryptocurrencies, especially altcoins, is less optimistic, according to analysts. Analysts have warned that the overall crypto market could suffer due to reduced liquidity and risk appetite. As investors become more risk-averse, they may move their funds away from higher-risk assets like smaller cryptocurrencies and into safer investments, further exacerbating the challenges altcoins face in a recessionary environment.
*This is not investment advice.