What does a global recession mean for cryptocurrencies 

According to WEF, two-thirds of chief economists anticipate a global recession this year but the subsequent behaviour of crypto is yet to be known

Future predictions indicate that cryptocurrencies can recover when macroeconomic conditions improve
Future predictions indicate that cryptocurrencies can recover when macroeconomic conditions improve

Recessions, in the simplest terms, are sustained decline in a nation’s economy or gross domestic product (GDP). Historically, recessionary sentiment has resulted in a slowdown of most economic factors, including investment activity.

According to World Economic Forum (WEF), an international non-governmental platform, two-thirds of private and public sector chief economists anticipate a global recession this year, with roughly 18% considering it to be ‘extremely likely’. “I mirror ex-IMF chief economist Gita Gopinath’s views- although we will likely see a prompt recovery, a global slowdown seems to be on the horizon,” Sankhanath Bandhopadhyay, economist, Finance Sector, said.

Even though crypto originated during the Great Recession in 2009, the blockchain industry was considered to be infinitesimal at the time. Moreover, Web3.0 innovations such as smart contracts, play-to-earn games, and NFTs (non-fungible tokens) only existed when Ethereum (ETH) began in 2015.  Therefore, the behaviour of cryptocurrency during a recession is yet to be anticipated.

According to Worldcoin, a global crypto community, some economists have predicted what a recession might mean for digital tokens. They believe that the value of risky assets such as crypto may depreciate, with BTC rising in dominance due to investors pulling out of riskier, small and mid-cap altcoins. Additionally, layoffs may increase at crypto companies, as seen during the crypto selloff in 2022, when many centralised crypto exchanges (CEXs) such as Coinbase, Gemini, and announced that they laid off employees. “I believe the impact will be dependent upon how fast the slowdown happens- the longer it is spread out, the softer the impact will be on crypto,” Sathvik Vishwanath, co-founder and CEO, Unocoin, a crypto trading platform, said.

However, as per The Motley Fool, a financial advisory company, there might exist an investment opportunity for crypto enthusiasts. In 2015, the S&P 500 posted its first negative year since the Great Recession when the market cap of all cryptocurrencies fell by nearly 70%. Another such period came in 2018 when the S&P 500 lost six percent of its value, its worst year since the Great Recession. Reportedly, a thousand dollars invested in Bitcoin during its low in 2015 would have been worth more than $80,000 by 2017. And a thousand-dollar investment in 2018 would have yielded nearly $20,000 by 2021. 

Therefore, market research predicts that the valuation of cryptocurrencies can recover when macroeconomic conditions improve. “In my opinion, long-term, systematic crypto investing is the way to go. Investing fixed amounts over time allows one to buy proportionately more when prices are low, and buy proportionately less when prices are high- lowering your average costs,” Rajagopal Menon, vice-president, WazirX, a cryptocurrency exchange, said.

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First published on: 13-02-2023 at 08:00 IST