The US Federal Reserve has decided to cut interest rates by half a point for the first time in a few years in mid-September, and though it was certainly welcome, questions of whether a recession could occur still remain. Though the rate cut signals some strength, it’s certainly no guarantee that the economy is out of the woods yet. It’s possible the rate cut is meant to spur some increase in spending, which it may have already done, but how much spending is necessary and whether it’s really the right thing to do at this point in time is hard to say.
If a recession were still to occur, what would happen to the price of crypto assets such as Bitcoin?
Risky Assets At Risk
As you might expect, during a recession riskier assets tend to be at a bigger risk of dropping significantly in value. This is especially true of crypto assets that aren’t Bitcoin or stablecoins.
Bitcoin has been around long enough and has enough global appeal that its price can only go down so far before it gets bought back up, but your random memecoins will dump in price at a fast rate in the event of a recession.
Stablecoins are, well, stable, which is why a lot of people will sell their crypto assets for stablecoins if they think the market is going to go down.
Now, logically you might think Bitcoin would be a safe haven during a recession, and for some nations’ residents it probably is, but it really is quite dependent on the fiat currency in your area.
For those with currencies that are already inflating, Bitcoin will remain pretty valuable in that local fiat, as is seen with Bitcoin continuing to go up against currencies such as the Japanese Yen or Nigerian Naira.
Good Time to Buy?
If you have free capital during a recession, then you’re in a good position and can probably try and buy the dip. Though money tends to flow out of risky assets such as cryptocurrencies during tough financial times, it flows back in just as fast when the tides start to turn the other way. This means it’s possible to make big gains if you’re fortunate enough to be able to buy during a recession.
Even just small adjustments to expectations of a recession can make prices flip green for risky assets such as digital ones. The Federal Reserve cutting interest rates by just half a point on September 18, 2024 saw Bitcoin jump almost 5% in less than 24 hours.
Closing Thoughts
A recession is never a good thing, and it’s unlikely to have any positive effect on crypto markets, and even traditional markets. Hopefully we’re able to avoid one and continue to see interest rate cuts from the US Federal Reserve, as that helps every other nation that does business with them and their local currencies as well.
