Since its inception as a reaction to the 2008 global financial crisis, Bitcoin has not experienced a full-fledged recession.
The 2008 global financial crisis prompted Satoshi Nakamoto to create Bitcoin (BTC). It created a new method to exchange that didn’t rely on third parties, such as banks, particularly failed banks that were yet bailed out by the government at the expense of the general public.
Satoshi Nakamoto wrote in 2009, “The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. The current 75% fall from $69,000 highs in November 2021 shows that it isn’t untouchable by global economic forces.” In 2010, Satoshi said: “The central bank must be trusted not to debase the currency. However, as study after study has shown, history is full with examples where people were entrapped into taking actions they never intended on doing.
The cryptocurrency’s fall occurred during a period of rising inflation, when central banks responded with a dovish bias. The Federal Reserve by 75 bps on June 15 to control inflation that hit 8.4 percent in May is an example of this.
The crash also caused Bitcoin to move even more in line with the tech-heavy Nasdaq Composite’s performance. From November 2021 through June 2022, the U.S. stock market index plummeted by 30%.
According to Fed Chairman Jerome Powell’s Congressional testimony, the Federal Reserve will continue to lower inflation by raising interest rates, albeit stating that “the pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy.”
The Fed will raise benchmark rates by another 75 basis points in July and then 0.5% more in September, according to a survey of economists conducted by Reuters.
Adding more downside danger to an already-faltering cryptocurrency market, according to London-based financial intelligence firm Informa Global Markets, is that the Fed will not bottom out until it reduces its “aggressive approach to monetary policy.”
The U-turn in hawkish policies, however, appears unlikely in the near term, owing to the Fed’s 2% inflation goal. Interestingly, the difference between the Fed’s bond rates and consumption prices (CPI) has now reached its highest point ever.
Bitcoin is experiencing its first potential recession. According to a poll of 49 economists conducted by the Financial Times, around 70% predict that the United States will enter a recession in 2019 owing to a dovish Federal Reserve.
A country enters a recession when its economy experiences a negative gross domestic product (GDP), along with increasing unemployment levels, declining retail sales, and decreasing manufacturing production for an extended period of time. According to the poll, about 38% of respondents believe that the recession will start in the first half of 2023, while 30% think it will happen during the Q3–Q4 session. Furthermore, according to a Bloomberg survey conducted in May, there is a 30 percent probability of recession next year.
The predictions might put Bitcoin in danger of becoming caught up in an economic catastrophe. Furthermore, the fact that it has not behaved like a safe-haven asset throughout the period of increasing inflation raises the likelihood that it will continue to fall alongside Wall Street indices, particularly technology stocks.
At the same time, the collapse of Terra (LUNA, since renamed LUNC), a $40 billion “algorithmic stablecoin” project that resulted in insolvency issues for Three Arrow Capital, the biggest crypto hedge fund, has reduced demand in the cryptocurrency market.
The cryptocurrency sector is in a bear market, and as a result, many cryptocurrencies have tumbled. Ether (ETH), the second-largest virtual currency after Bitcoin, has dropped by more than 80%, to $880 lows during the ongoing downturn. Other top-ranking digital assets such as Cardano (ADA), Solana (SOL) and Avalanche (AVAX) plummeted by 85% to over 90% from their 2021 highs. “The crypto house is on fire, and everyone is just rushing to the exits because there’s just no confidence in the space,” said Edward Moya, a senior markets analyst at OANDA, an online forex brokerage.
The Bitcoin bear markets are nothing new. Incoming bearish projections for Bitcoin anticipate that the price will break below its $20,000 support level, with Leigh Drogen, a digital assets quantitative hedge fund’s general partner and CIO, anticipating that the coin will fall to $10,000, down 85% from its peak. There is little evidence suggesting that Bitcoin is on the verge of total destruction; especially when compared to the previous record high after each of the coin’s six 50 percent declines (based on 20 percent plus corrections).
Unfortunately, this is not the case for all cryptocurrencies in the market. Unfortunately, many of these so-called “altcoins,” or “alternative currencies,” have fallen to their deaths this year, with some low-cap coins recording 99 percent price drops.
In the event of a global economic catastrophe, however, projects with healthy adoption rates and actual users may come out on top. The leading contender is Ethereum, the main smart contract platform, which dominates the layer-one blockchain ecosystem with more than $46 billion frozen in its DeFi applications.
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