Recession predictions are being predicted at the highest levels and that’s both good and bad news for Bitcoin (BTC).
For now, it’s all good.
To keep things in perspective, after starting 2023 and changing hands at about $16,600, Bitcoin remains more than 50% below its all-time high in November 2021.
However, on Monday, the top crypto rallied by 4.57%. Following a 1.50% gain on Sunday, Bitcoin moved past the $30,000 level for the first time since June 10, 2022. The global crypto market cap stood at $1.24 trillion, with a volume of $44 billion in the past 24 hours alone, gaining about 80% year to date, beating the Nasdaq 100 tech index’s 19% gain.
If that’s not a bull, I don’t know what one is. But if you’re one hoping to see an explosion towards $100k, maybe you shouldn’t keep your hopes up. Let’s explain.
FED monetary policy and recession talks
Here is what could have contributed to the BTC price buoyancy on Monday.
The US Federal Reserve reigniting fears of a recession and investors anticipating a 25-basis points interest rate hike ahead of tomorrow’s US CPI Report fueled increased speculation in Bitcoin.
A US recession could negatively impact the already shaken banking sector and cause a liquidity void that could see investors looking for Bitcoin as a safe haven asset.
It was the cracks displayed in the banking sector starting with the SVB bankruptcy that ignited Bitcoin towards the $28k level, to begin with, and further fears on that end can be the fuel that sustains BTC’s climb.
The IMF recently warned of non-bank financial companies that endanger financial stability while Jamie Dimon, longtime CEO of JPMorgan Chase and Co, cautioned in a recent 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).”
A full-on versus a mild recession
A full-on recession I not that advantageous for Bitcoin, which is considered a risky asset, and might put the brakes on the current rally. If financial markets suffer and the Bitcoin-tech stock relationship holds, it means investors would be inclined to go risk-off in a recession.
A mild recession might do the trick for BTC, however.
In that scenario, the Fed would be increasingly leaning to reduce interest rates and drive growth. This factor alone could ship investor capital into crypto markets in search of high returns when lending rates are squeezed.
Add De-Dollarization to the mix
Finally, as a result of the Russian-Ukraine war and US pressures on OPEC+ not to cut production, several European, Asian, and Arab countries are engaging in De-dollarization procedures, opting to trade using local currencies. This weakens the reputation of the Greenback and makes the case for BTC, which is like owning your own global bank independent of any currency swings.
Bitcoin emerging as a reliable refuge that many had anticipated could happen, but it will have to cross a crucial crossroad before making that leap of faith which is predicated on a number of economic criteria, many of which are hard to predict.
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