Good day everyone,
I hope you are all having a good day, welcome to CryptoGod-1's blog on all things crypto. In this post I will be looking at the potential impact of a United States Recession on Bitcoin.
US Recession Fears
A long expected interest rate cut by the United States Federal Reserve is likely to have an impact on Bitcoin, and it could potentially drive down the price of the popular cryptocurrency. A report from Bitfinex on the 2nd of September 2024 noted that a US rate cut could present a “challenging time” for Bitcoin traders.
There are fears of a 50 basis point cut, although a 25 basis point cut is considered the much more favourable option. This has the potential to create a "long-term price appreciation for Bitcoin as liquidity increases and recession fears ease” and the report noted that caution should be kept as a more aggressive cut is likely to have the opposite impact.
Given that a 50 point rate cut would likely trigger a correction, the fear remains that Bitcoin could be pushed further into its recent slump as the fears of a recession in the United States continue to mount. Analysts as part of the report for Bitfinex noted:
“If we were to speculate, we would caution to expect a 15-20 percent decline when rates are cut this month, with a bottom of $40-50k for BTC."
"Typically, rate cuts are perceived as bullish catalysts for risk assets. A 25 basis point rate cut would likely mark the beginning of a standard rate-cutting cycle, which could lead to long-term price appreciation for BTC as recession fears ease. Such a move would signal the Fedʼs confidence in the economy's resilience, reducing the likelihood of a severe downturn."”
These fears of a recession gained traction back in early August as the Sahm Rule Recession Indicator, which tracks economic downturns, jumped to 0.53 from 0.43 following the report of weak data regarding US jobs. This is the signal for a looming recession. The meeting of the Federal Open Market Committee (FOMC) is scheduled for the 18th of September, and the majority of traders on Polymarket have been betting on a rate cut.
The data from the decentralized betting platform shows that 69% of traders expect a 25 basis point cut. This would reflect a strong consensus for this outcome, although a further 27% anticipate a more substantial 50 basis point cut. Only 3% feel that the rate will remain unchanged.
Given the Fed is responsible for controlling inflation while also promoting economic growth as part of their dual mandate, the current decline in inflation and a weakening job market have risen expectations that very weak data could make a 50 basis point rate cut more realistic. Strong data may just rule out a larger cut. September has historically been a “volatile month” for Bitcoin and given the anticipated Fed rate cut, the complexity of the market is only further highlighted.
Analysts have differing opinions on the impact of a declining Bitcoin price. A 20% drop would see it reach $46,000, levels unseen since February 8th. Some have identified the low 40,000s as the idea entry point for the next bull market. Others feel the market bottom could be around $57,000, citing historical fractal patterns used to identify key support and resistance levels and potential trend reversals. While Bitcoin has strong support at $57,000, a move below liquidate over $860 million worth of cumulative leveraged short positions.
While the Fed is considering its cut rate, Grayscale’s GBTC, the second-largest spot Bitcoin ETF, has seen $50.39 million withdrawn. The United States Bitcoin exchange-traded funds (ETFs) experienced their largest outflows since the 1st of May as their net outflows reached $287.78 million last Tuesday. Fidelity’s FBTC faced the heaviest losses, with $162.26 million in outflows. Ark and 21Shares’ ARKB had $33.6 million in withdrawals, and Bitwise’s BITB saw $24.96 million leave the fund. ETFs managed by VanEck, Valkyrie, Invesco, and Franklin Templeton reported smaller outflows.
Data from the past decade shows the impact of a Fed Rate cut. Over the following month of doom and gloom it should be noted that it could be seen as an attractive buying opportunity for investors with better months expected ahead. An analyst at K33 Research argued:
"Buying blood in September to build exposure for Q4 has historically been the best spot strategy."
Over the period of October to April it has been shown to be the historically strong time for Bitcoin. Back in 2017 if somebody purchased Bitcoin in October and then sold in April they would have made 1,449% in gains. A trader opting for the opposite strategy would have seen net negative returns.
Trump has also given his feeling on the space, looking to embrace the industry of crypto and Web3 instead of attacking them. He doubled down on his stance to make the United States the “world capital for crypto and Bitcoin” if he is re-elected when speaking at the Economic Club of New York last Thursday. Trump pledged that his administration would eliminate at least 10 old regulations for every one new regulation, adding this would help to liberate the US economy from crippling regulation. He noted:
“Instead of attacking industries of the future, we will embrace them, including making America the world capital for crypto and Bitcoin.”
As part of Trumps hour long speech he noted plans to slash current regulations, cut down on inflation, and promote increased domestic energy production. He also wants to turn America into the “manufacturing superpower of the world.” This is in an attempt to boost pro-American trade policy which will make use of tariffs to encourage local production and bring trillions of dollars back home.
Have a great day.
Peace. CryptoGod-1.
Referral Links and Follow Me:
