Bitcoin was introduced after the last big recession in 2009, but this time around the rules of the game seem to have changed. In a post-truth world, United States economists cannot agree on whether a US recession will happen or not, has begun or not, or even how to define a recession.
The Federal Reserve (Fed) continues pursuing a policy of aggressive fiscal tightening to fight high inflation that now stands at 8.5%, suggesting that a sustained economic contraction is highly possible.
In case such a scenario passes, or has passed, what does this mean for Bitcoin and crypto in general.
Which Or What Recession?
Until recently, a recession described two consecutive quarters of falling Gross Domestic Product (GDP). With the United States economy now on track for two consecutive quarters of dropping GDP, a White House blog asked, “How Do Economists Determine Whether the Economy Is in a Recession?”
Answer: by any other measure than two successive quarters of falling GDP.
Based on the White House, a recession should instead get identified by taking a “holistic look at the data,” which includes the labor market, production, spending, and incomes. In the United States, the National Bureau of Economic Research (NBER) conducts research, with “no fixed rules or thresholds” to determine what they are assessing.
With the word recession now eroded into meaninglessness, US economists are free to debate any position they like according to whatever meaning they choose.
Choose A Recession Wisely
Over the last several months many economists and industry leaders have talked to broadcasters and media outlets to provide their analysis on whether a recession might happen or not. In a recent CNBC retrospective analysis, the broadcaster highlighted just some of the contradictory opinions they had recently got.
A professor of applied economics at Johns Hopkins University, Steve Hanke, strongly thinks that the United States is headed for a major drop. He told the broadcaster:
“We’re going to have one whopper of a recession in 2023.”
Richard Thaler, a Nobel Prize-winning economist, might not disagree more. Based on a statement by Thaler, the United States is not entering “anything that resembles a recession.”
Stephen Roach, of Yale University, thinks that a recession is incoming, but it will not be as bad as in the early 1980s.
To clear up any possible confusion, Steen Jakobsen told the viewers that the United States is not going for a recession in nominal terms, even if it is in real terms. In the meantime, Liz Ann Sonders at Charles Schwab highlights that a recession is highly possible than a soft landing.
A Crash Course In Soft Landings
A soft landing is a term the Federal Reserve (Fed) utilizes to describe a scenario where inflation can be pushed down without resulting in a recession. Increasingly the notion appears like a fair weather fantasy that has no basis in reality.
In an August 26 speech in Jackson Hole, Wyoming, Jerome Powell appeared to indicate that their soft landing was stopped. The Fed would now pursue sustained “below-trend growth,” widely understood to mean a “growth recession.”
For clarification, the Fed will persevere with fiscal tightening measures until the joblessness rates increases, while the government and National Bureau of Economic Research continue denying that there is a recession.
Bitcoin And The R-Word
Bitcoin was born out of the last recession cycle in 2009 after the banking crisis of the previous year. In case the US economy can ever be officially described as in recession or in a recession-like environment once more, then it would be the first US recession of Bitcoin’s lifetime.
How Bitcoin reacts to this form of economic environment is understandably a huge point of interest for cryptocurrency heads, and so far, these signs appear to indicate not well.
No matter how these economists or politicians may choose to define the r-word, Bitcoin prices are either low or low. Bitcoin is now down 71% from an all-time high of $69,044 in November. The crypto is also down 57% from the beginning of the year, and 14.8% in the past 30 days.
It seems that Bitcoin is by no means immune to economic troubles in the economy or the traditional markets. Debate on this matter rages on.
Bullish bitcoin advocates like Eric Wall insist that the currency is at or around “fire sale” levels, a position that others in the sector have echoed. Earlier in August, Senior Bloomberg Analyst Mike McGlone said that Bitcoin is trading at a huge discount.
Outside the crypto sector, traders are less optimistic, with 63% of desks expressing strong bearish sentiments, based on the financial services firm Charles Schwab. The prevailing logic that was held by most people in the cryptosphere is that Bitcoin would work quite well in a high inflationary environment.
Recent price activity has supposedly poured cold water over the idea, but based on a statement by the managing director of Private Client Services at Swan Bitcoin, Steven Lubka, it all depends on how you can define the word inflation.
Lubka said that there is more than one type of inflation. A type where Bitcoin performs quite well and another where it does not. For now, it appears like we are in the latter inflationary environment.