Analysis: How the Crypto Markets are Gearing Up for a Worldwide Recession

Crypto markets are preparing to brace for the impact of a possible global recession. On Thursday, the United Kingdom and Japan fell into an unexpected recession hinting that a global downturn was just around the corner. Amid investors now gauging carefully before making investment decisions, the future of crypto markets resides in the doldrums.

UK and Japan slip into unexpected recession

According to official reports, the United Kingdom has entered a recession. According to the Office for National Statistics, the gross domestic product for the country shrank by 0.3% in the last three months of 2023, after contracting by 0.1% from July to September of the previous year. Two-quarters of contraction following one another is the standard definition of a recession.

On the other hand, unexpectedly entering a recession at the end of the previous year, Japan lost its position as the third-largest economy in the world to Germany. Government figures released on Thursday revealed that Japan’s gross domestic product (GDP) declined by an annualized 0.4% in the October–December quarter following a 3.3% decline in the previous quarter, defying market expectations for a 1.4% growth.

The struggling situation of two of the biggest economies in the world has raised doubts about the financial markets globally. With many other countries being on a sideline of recessionary risk, market participants are going to conform to a rather cautionary approach before investing in assets.

Will cryptocurrency markets withstand the effects of the global recession?

A recessionary attitude has historically caused a downturn in the majority of economic variables, including investment activity.
According to the Financial Express, a recession causes riskier assets like cryptocurrency to lose value. This will eventually also lead to investors moving out of riskier, small- and mid-cap altcoins. This could lead to Bitcoin then becoming the dominant cryptocurrency.

Furthermore, there may be a rise in layoffs at cryptocurrency organizations, as demonstrated by the 2022 crypto selloff, during which numerous centralized cryptocurrency exchanges include disclosed layoffs. The onset of this trend has already started with companies like Polygon Labs, Snap Inc., and others announcing layoffs to better “streamline” their business.

Many crypto enthusiasts argue that a fall of traditional institutional markets could help flourish digital asset world. However, the convenient myth that cryptocurrencies are a hedge against recession has been busted in the last year.  According to Yahoo Finance, popular cryptocurrencies, including Ethereum and Bitcoin, fell more than 70% from their peak as a result of investors avoiding riskier investments as interest rates increased.

However, on the other hand, some also argue that with the onset of financial downfall, crypto markets could emerge as a sidetrack for keeping investments away from centralized institutions. Strike founder and CEO Jack Mallers in an interview explained that amid a high debt equation and uncertain institutional markets, government local currencies may depreciate. Maller claims that this might force investors into a fiat debasement and cause a collapse in buying power. He feels that in such a scenario, people require a physical asset that is decentralized and that at the moment, Bitcoin is the only option.

Crypto market outlook: what to expect?

At present, the outlook for many cryptocurrencies, especially that of Bitcoin is anticipated to be positive this year. Various institutions have been placing bets that prices for the OG-crypto will see an upscale in the future. This includes Bitwise’s forecast that in 2024, the price of Bitcoin will surpass $80,000. For the first half of 2024, at least, institutional investment in Bitcoin will continue to be the main focus, according to Coinbase.

However, if there were a major collapse in the global markets, there would be some spillover effects on the cryptocurrency markets. This could show up as a gradual decrease in pricing or a decline in transaction volume.