Economic Concerns and Their Impact on Bitcoin

Amid fears of a U.S. recession and geopolitical uncertainty that rocked global markets this week, analysts weighed in on the probability of an economic downturn this year and the impact this could have on bitcoin and other cryptocurrencies.

Recession Fears

The fear of a global recession is indeed plausible given the current economic indicators and the recent actions of central banks,” analysts at crypto exchange Bitfinex told The Block via email. “Over the past three months, central banks have executed 35 rate cuts, surpassing the rate cut levels of early 2024. This proactive easing is reminiscent of the 2009 financial crisis, which saw 76 cuts at its peak.

Despite some improvements in the inflation outlook this year, with global inflation levels expected to moderate somewhat, economic growth projections remain “tepid.” The International Monetary Fund (IMF) forecasted a slight decline in global growth to 2.9% in 2024, compounded by persistent inflationary pressures, leading central banks to stimulate economies to avoid downturns.

A substantial amount of speculative-grade debt maturing in the U.S. in 2024, combined with falling bond yields, indicates a stressed financial environment. Investors are moving to safer assets, an indicator of a lack of confidence in sustained economic growth.

40% Probability for a H2 2024 Recession

Aurelie Barthere, Principal Research Analyst at on-chain analytics platform Nansen, said concerns are warranted. Eurozone growth has been weak since the 2022 energy shock from the war in Ukraine, and Chinese growth is weakening as its real estate bubble deflates.

While there is “no clear area of vulnerability” except for elevated equity market valuations, U.S. growth is also slowing. Barthere projects a 40% probability for a recession in H2 2024 (30% shallow, 10% hard landing), significantly above the historical average of 17%.

Impacts on the Crypto Market

The Bitfinex analysts believe that fears of an economic recession could have mixed effects on bitcoin and the broader crypto market. Bitcoin might benefit as a safe haven asset during economic uncertainty, attracting investors seeking stores of value. However, the broader crypto market, particularly altcoins, could suffer due to decreased liquidity and risk appetite.

Strong Catalysts Needed

Valentin Fournier, analyst at digital assets research firm BRN, expressed that strong catalysts are required to push bitcoin past current negative sentiments. Initial jobless claims and upcoming CPI data could provide insights into job creation and the Federal Reserve’s position on a hard landing.

In the medium term, potential interest rate cuts, the U.S. election, and the possible creation of a strategic national bitcoin reserve could serve as catalysts.

As of now, Bitcoin is trading at $57,247, up approximately 4% on Thursday, recovering from a 15% decline earlier in the week, but remains 11% down over the past week and up 33% year-to-date.