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The cryptocurrency market continues to stabilize after a volatile previous week. However, there is no reason to believe that the situation will change dramatically in the near future. On the contrary, more and more investors and experts are inclined to believe that the global economy will move into a recession phase. The first hints of global economic stagnation are already being traced, and therefore it is important to understand whether it is worth relying on cryptocurrencies in such investment conditions.
To begin with, we will deal with the concept of a recession, and then we will analyze the conditions under which Bitcoin and other digital assets will be able to become an important stabilizing component in a crisis. A recession is an integral part of the economic cycle, which is characterized by a decrease in the rate of development and growth of the economy of a state or a separate region. In the classical version, the recession cycle takes from 6 to 18 months and is characterized by a decline in production, the country's GDP, and household incomes, as well as rising unemployment and a significant reduction in investment activity. As of May 20, experts from Bloomberg and Goldman Sachs estimate the risk of a recession in 2022 at 30%–40%, which is a high figure.
Basically, such forecasts are provoked by rising inflation around the world. As strange as it may sound, the coronavirus pandemic has become a cakewalk after what humanity expected in 2022. The massive amounts of liquidity that flooded the market in 2020–2021 became a huge problem after the outbreak of the war in Ukraine. The food and energy crisis and the disruption of a large percentage of supply chains have exacerbated the current crisis. It is also important to note that the Chinese economy also began to stagnate against the backdrop of another outbreak of the pandemic.
Given the combination of these factors, there is no doubt that the coming years will be very difficult for the global economy and investment projects. There is no doubt that speculative projects will not survive the coming storm, but in general, the cryptocurrency market has the potential to become an important investment vehicle in a recession. However, for this, Bitcoin needs to become a more flexible asset. In the current conditions, the cryptocurrency is perceived exclusively as a low-yielding (because of the bear) highly volatile instrument. Therefore, first of all, Bitcoin needs to break the correlation with stock indices. It is likely that this will happen in the near future, as the asset is already approaching the inflection point of the downward trend.
Another important factor that will influence the investment opportunities of Bitcoin will be the state of the US dollar. The Fed is doing everything necessary to strengthen the national currency of America, but there is every reason to believe that the decline in incomes of the population, as well as rising prices, will negatively affect investor interest in the USD. At the same time, Bitcoin can take its place with the full implementation of the bull market, or at least a decrease in volatility at high levels, above $40k, which is the psychological zone of interest of large investors.
And here we come to the key component, which is investor faith in Bitcoin. An asset can become the main investment tool, but only with the corresponding interest of investors. If Bitcoin gets massive support at local lows and this allows it to start a bullish trend, then USD will have to move as BTC becomes a more attractive medium.
Meanwhile, Bitcoin continues to consolidate within a narrow range of $29k–$31k. Volatility is falling, while buying volumes are gradually increasing, as is the number of longs. Given these facts, we can assume that BTC/USD can soon carry out a bullish spurt to the $33k–$35k area. Further price movement will depend on many factors, but in any case, one should not expect a protracted growth in anticipation of the start of the quantitative tightening program.
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