Economic, financial, and business analysts have been on the lookout for an imminent recession since late 2022. The only question in a field of certainty that a mild recession is looming is where?
Will the recession emerge from a financial crisis? Will oil or some other commodity trigger it? Could it start in housing as it did with the Great Recession? The critical weakness in banking that became evident to markets in Q1 of this year signals it could start with a bank meltdown.
The IMF warned this week of “shadow banks,” or non-bank financial companies that endanger financial stability as well. Jamie Dimon, longtime CEO of JPMorgan Chase and Co, warned in a recent letter it will be nothing like 2008, but the next recession will last for years:
“As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come. But importantly, recent events are nothing like what occurred during the 2008 global financial crisis (which barely affected regional banks).”
If Dimon is right and the economy is more apt to fall into recession, it could be a macro headwind. Bitcoin price could face unstoppable resistance until the cycle flips. But it could be a tailwind for Bitcoin. It just depends on how the disruptions to the economy shake out.
A recession this year could easily put an end to the Bitcoin price rally. Furthermore, a contraction in economic growth could push down the price and drag the entire crypto sector down with financial markets. It would be in keeping with the Bitcoin-tech stock correlation trend, and investors would be apt to go risk-off in a recession.
However, it’s possible a mild enough recession with certain characteristics could send some tailwinds Bitcoin’s way. The Fed would be increasingly likely in a recession to lower interest rates to spur growth. That might send investor capital into crypto markets in search of yield after squeezing down their rates in lending.
Higher rates in TradFi could be just the impetus that some institutional investors need, who have been dipping their toes in the crypto waters, to dive in and make some big trades in search of alpha for their portfolios. It’s a brave new world and changing constantly, so never before has it been more true that past results do not guarantee future performance.