The US just had two consecutive quarters of negative gdp growth. However despite the results, the White House doesn’t believe we’re in a recession. The same week that the federal reserve raised interest rates by 75 bps there was news that the us is now two consecutive quarters with negative gdp shrinking 0.9% in the past quarter.
The U.S economy has been shrinking for two consecutive quarters, but the White House is not calling it a recession yet–they say that’s an official definition from NBER which only happens during major depressive episodes in our country’s history (such as when unemployment reaches 10%). However many factors go into determining whether or not you have qualify as “recession” according them: 1) how long this period lasts 2)-the severity 3). Whether prices keep falling 4)) What kind of economic shock caused these events (trade war, natural disaster, etc)
Right now, the two biggest indicators of a recession are an inversion of the yield curve and high unemployment. The yield curve inverted last week–meaning that short-term U.S. Treasury bonds yield more than long-term ones.
This is significant because it’s often seen as a predictor of an upcoming recession. As for unemployment, it’s currently at 3.7%, which is near a 50-year low, but if layoffs start to happen and people can’t find jobs, that number will rise pretty quickly.
In terms of what this all means for bitcoin, it’s hard to say. In the past, recessions have actually been too good for Bitcoin, during the 2020 downturn Bitcoin bottomed to it’s lowest in years at around $3,000. Also Bitcoin hasn’t been around for too long so we don’t actually know how the asset behaves in recessions. Bitcoin wasn’t founded until 2009, after the recession. We have already seen that Bitcoin is not a hedge against inflation. We are currently in uncharted territory with this particular recession, as it is being caused by a trade war–something that has never happened before.
Where does Bitcoin play a role in this?
Right now as it stands Bitcoin is at roughly $23K and is up 10% this week ending on July 30. The current “recession” that we are facing is a very unique one. We have high inflation, with low unemployment and many ongoing geopolitical conflicts. Bitcoin seemed to response positively during the recent rate hikes. Right now Bitcoin seems to be on a slow uptrend. Ultimately it will come down to the risk tolerance investors and speculators are willing to place. Bitcoin is still a volatile asset that can have huge swing and fast run-ups. Nonetheless it has a strong supportive community and with an uncertain market, investors may still prefer Bitcoin.
How the Latest Fed Rate Increase Could Impact Crypto Prices, Based on These 3 Charts
While the cryptocurrency markets have shown some stabilization recently, prices are still well below their all-time highs. One possible reason for this is the interest rate increase by the Federal Reserve. As rates rise, the cost of borrowing money increases, which can lead to reduced investment in riskier assets like cryptocurrencies. This is evident in the first chart, which shows that Ethereum prices tend to move inversely to US interest rates. The second chart shows that when the Fed raises rates, Bitcoin prices tend to fall as well. This is likely due to reduced demand from investors seeking to avoid losses in other asset classes. Finally, the third chart shows that Ethereum prices have tended to correlate closely with Bitcoin prices in recent months. This suggests that if Bitcoin prices fall in response to higher interest rates, Ethereum prices are likely to follow suit. Ultimately, the direction of crypto prices will largely depend on how investors react to the Fed’s latest rate increase. If history is any guide, it seems likely that prices will continue to experience volatility in the short-term.
