Recession Predictor Jumps, Another Crypto Slump Around The Corner?

Bloomberg’s Recessions Probability Model predicts a 38% percent chance of US recession in the next year. The model, which factors in data points like housing permits and consumer survey data, shows that the risk of a self-fulfilling recession within the next 12 months is higher than at any time during this year.

Meanwhile, Coinbase research shows that two-thirds of the crypto slump can be attributed to macro factors. Crypto prices, which already plummeted in response to the Fed’s interest rate hike, could face another major downturn if the recession fears continue to loom. 

Bitcoin, the largest cryptocurrency, just witnessed its worst financial quarter in a decade. 

Recession Fears Grow

The Bloomberg report, which predicted the 38% chance of recession, pointed to the Fed’s interest hike and deteriorating consumer sentiments as the major factors driving inflation. A consumer sentiment report from the University of Michigan showed record lows in both consumer sentiment and consumer’s expected change in business conditions. 

The Atlanta Federal Reserves revealed that their GDPNow model showed Q2 real growth of -2.1%. The Q1 GDP also showed negative growth of 1.5. This points to two consecutive financial quarters of decline in the GDP. Most experts consider that to be a rule-of-thumb definition of recession. 

Fear of recession has already had a massive impact on many sectors of the market. Oil and stock prices plummeted over fears of recession. Euro fell to a two-decade low in comparison to the US Dollar. 

How Will A Recession Affect Crypto?

A Coinbase report shows that two-thirds of Cypto’s slump is due to macro factors like inflation and tax hike, while only one-third can be attributed to weakening crypto prospects. The report also pointed out that post-pandemic, the correlation between crypto and traditional markets has gone up.

Beta is a measure of how an asset is correlated with the market. The beta for Bitcoin and Ethereum rose from 0(no correlation) in 2019 to the current level of 2. If the strong correlation holds, then the crypto market can tumble further as recession fears grow.