Cryptocurrency markets are preparing for the impact of a possible global recession. On Thursday, the UK and Japan slipped into unexpected recessions, suggesting a global recession is on the horizon. The future of the crypto market is in the doldrums as investors are cautious before making investment decisions.
Britain and Japan fall into unexpected recession
According to official reports, Britain has entered a recession. The country's gross domestic product shrank by 0.3% in the last three months of 2023, after contracting by 0.1% from July to September last year, according to the National Statistics Office. The standard definition of a recession is a series of two-quarter recessions.
Meanwhile, Japan fell into an unexpected recession at the end of last year, losing its position as the world's third largest economy to Germany. Japan's gross domestic product (GDP) fell at an annual rate of 0.4% in the October-December quarter, following a 3.3% decline in the previous period, contrary to market expectations for 1.4% growth, according to government statistics released on Thursday.
The world's largest economy's woes have raised doubts about global financial markets. With many other countries avoiding recession risks, market participants will likely take a very cautious approach before investing in assets.
Will the crypto market survive the effects of the global recession?
Recessionary attitudes have historically led to a decline in most economic variables, including investment activity.
According to Financial Express, recessions cause the value of risky assets such as cryptocurrencies to fall. This will eventually lead to investors exiting riskier small and medium-sized altcoins. This could lead to Bitcoin becoming the dominant cryptocurrency.
Furthermore, layoffs in crypto organizations are likely to increase, as illustrated by the crypto crash in 2022, during which layoffs have been announced at numerous centralized crypto exchanges. The beginnings of this trend have already begun with companies like Polygon Labs and Snap Inc. announcing layoffs to “streamline” their businesses.
Many cryptocurrency enthusiasts argue that the collapse of traditional institutional markets could help the world of digital assets flourish. However, the convenient myth that cryptocurrencies are a hedge against recession was shattered last year. According to Yahoo Finance, popular cryptocurrencies such as Ethereum and Bitcoin have fallen more than 70% from their peaks as rising interest rates led investors to avoid riskier investments.
But others argue that once a financial crisis begins, crypto markets could emerge as a side channel to move investment away from centralized institutions. Strike founder and CEO Jack Mallers explained in an interview that the government's local currency could depreciate amid high debt balances and uncertain institutional markets. Mueller argues that this could cause investors to devalue fiat money and cause a collapse in purchasing power. He feels that in such a scenario, people need a decentralized physical asset and Bitcoin is the only option at the moment.
Cryptocurrency market outlook: what to expect?
At the moment, the outlook for many cryptocurrencies, especially Bitcoin, is expected to be positive this year. Various institutions are betting that the price of OG crypto will rise in the future. This includes Bitwise's prediction that the price of Bitcoin will exceed his $80,000 mark in 2024. According to Coinbase, institutional investment in Bitcoin will remain the main focus for at least the first half of 2024.
However, if a major collapse occurs in the global market, there may be some ripple effects on the cryptocurrency market. This can manifest as a gradual decline in price or a reduction in trading volume.
