The IMF downgraded its forecast for the global economy on Tuesday and issued a clear warning:
“The worst is yet to come, and for a lot of people, 2023 will feel like a recession.”
As the old joke goes, “A recession is when your neighbor loses his job. A depression is when you lose yours.” If 2023 feels like a recession for many people, as the IMF warns, financial markets are likely to forgo risk. That could mean a discount on stock and crypto prices.
Bitcoin price remains correlated with stocks
Bitcoin price has been thoroughly correlated with stocks for over a year and a half. There are many theories about the factors behind this correlation.
It can only show what securities markets inevitably do when they reach a certain liquidity threshold. Or it could be an indicator that institutional money accounts for a significant portion of capital inflows.
Regardless of the causative factors, bitcoin price is likely to face strong and sustained headwinds. If the global economy stumbles into recession, BTC could fall as investors pull their money close.
Bitcoin’s price declined during the 2020 flash pandemic recession, along with stocks. Crypto markets also sold off along with stocks in December 2021 and May 2022.
Long-term bullish outlook for BTC
On the other hand, it is now possible that the Bitcoin price could get a boost from the Fed’s intervention. If the Federal Reserve and other banks cut rates to fight the recession, BTC would likely rise.
In any case, even if there is no central bank intervention and a recession pulls bitcoin prices lower, the cryptocurrency will still be attractive at these prices.
That’s because bitcoin rose to prominence primarily in response to the 2008 recession. It then experienced an incredible bull market in March 2020 following the global collapse in asset prices. BTC rallied to far outshine stocks.
The lesson here is that markets are risk free with bitcoin and other risk assets when times are bad, but when times are good, remembering the bad times, they capitalize on bitcoin with inflows to hedge against the next economic shock. This is a bullish long-term view.
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