The IMF downgraded its projections for the global economy Tuesday, warning in stark terms:
“The worst is yet to come, and for many people, 2023 will feel like a recession.”
As the old joke goes: “A recession is when your neighbor loses their job. A depression is when you lose yours.” If 2023 feels like a recession for many people, as the IMF warns, financial markets are apt to go risk off. That could mean a discount on the prices of stocks and crypto.
The bitcoin price has been thoroughly correlated with stocks for over a year and a half now. There are many theories about the factors behind that correlation.
It may just show what markets for securities inevitably do when they reach a certain threshold of liquidity. Or it could be an indicator that institutional money has made up a sizable portion of capital inflows.
Regardless of the causative factors, the bitcoin price is likely to face a strong and persistent headwind. If the world economy stumbles into a recession, BTC could fall as investors pull their cash in close.
Bitcoin’s price went down during the flash pandemic recession in 2020, along with stocks. Crypto markets sold off along with equities in Dec 2021 and May 2022 as well.
Now, on the other hand, it is possible that the bitcoin price gets a boost from Fed intervention. If the Federal Reserve and other banks lower rates to fight the recession, then BTC would likely rally.
In either case, however, even if there is no central bank intervention and a recession pulls down bitcoin prices, the cryptocurrency will still be attractive at these prices.
That’s because Bitcoin grew to prominence in the first place as a response to the 2008 recession. Then, it had an incredible bull market after the worldwide asset price collapse in Mar 2020. BTC went on a rally to far outshine equities.
The lesson here is that markets go risk-off with bitcoin as well as other risk assets during the bad times, but during the good, when they remember the bad times, they heavily capitalize on bitcoin with inflows to shore up for the next economic shock. That’s a bullish long-term outlook.