Bitcoin’s deflationary model could prove crucial for Hodler as World Bank officials warn of a likely global recession in 2023.
Economists at the Washington-based organization predict that global GDP growth will grow by 1.7% in 2023, about 100 basis points less than the 2.9% forecast for 2022.
World Bank economist says worst case now baseline
In addition, the economist responsible for the Global Prospectus Report said the bank’s worst-case scenario from six months ago is now its baseline, with further rate hikes pushing economies over the edge.
“The global economy is on a razor’s edge and could easily slip into recession if financial conditions tighten,” said Ayhan Kose. The bank added that a 1% hike in global interest rates would cut its baseline forecast for GDP growth to 0.6% from 1.7%.
Source: Bloomberg
The US Federal Reserve is likely to introduce less severe rate hikes this year than in 2022, which saw four 75 basis point hikes. Lower unemployment and wage growth in December 2022 suggest the US economy is reacting to tightening policies that investors are hoping will end in 2023. The US consumer price index for December 2022, which the Federal Reserve uses as an indicator of inflation, will be released on January 12, 2022. A lower number means the Fed’s tightening policy is working, reducing the likelihood of aggressive rate hikes in 2023.
Even if the economies don’t technically enter recession, the eurozone and the US are likely to experience a subjective slowdown, Kose said. Several factors, including Russia’s invasion of Ukraine, high interest rates, high inflation and lower investment, have contributed to the lender’s pessimistic forecasts.
After severe declines in developing countries during the pandemic, the World Bank expects investment in these regions to remain at 3.5%. He expects stagnating growth until 2024.
Earlier this month, the chief executive of the International Monetary Fund forecast that a third of the world will experience a recession in 2023.
Data shows that bitcoin hodlers should be fine
Crypto investors are hoping Bitcoin will fulfill its potential as a deflationary currency that resists central bank tightening efforts.
Every 210,000 blocks or four years, the Bitcoin algorithm reduces the issuance of Bitcoin for each block of transactions successfully mined. This software mechanism helps to control the scarcity of the asset. Higher demand drives Bitcoin’s price higher, increasing incentives for miners to continue securing the network. The algorithm currently rewards miners with 6.25 BTC for each successfully mined block. This reward will drop to 3,125 BTC in April 2024.
Simply put, Bitcoin’s monetary policy is defined by software rather than a central authority.
While bitcoin trailed stock markets lower for most of 2022, it has not depreciated like the US dollar for long stretches of time.
Between 2011 and 2021, data from Bloomberg shows that while overall CPI (including food and energy costs) has increased by 28%, the value of bitcoin has fallen relative to CPI, so everything that cost 1 bitcoin in 2011 will be down in 2021 Cost 0.004 satoshi. A satoshi is one hundred millionth of 1 bitcoin. In other words, the value of bitcoin increased as the dollar depreciated.
Source: Bloomberg
Therefore, bitcoin hodlers with a five- to ten-year time horizon ahead of the recession will likely be safest.
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Disclaimer
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