Bitcoin was created after the last major recession in 2009, but this time the rules of the game have changed.
In a post-truth world, US economists now can’t agree on whether or not a US recession is likely, whether or not it has started, or how to define a recession.
The Federal Reserve (Fed) continues to pursue aggressive fiscal tightening policies to combat high inflation, currently at 8.5%, suggesting that a sustained economic contraction is becoming increasingly likely.
If such a scenario should or is over, what does that mean for crypto and bitcoin?
What or what recession?
Until recently, a recession referred to two consecutive quarters of falling gross domestic product (GDP). As the US economy is on track for two straight quarters of falling GDP, a White House blog asked, “How do economists determine if the economy is in recession?”
Answer: by any measure other than two consecutive quarters of falling GDP.
Instead, according to the White House, a recession should be identified by “looking at the data holistically,” including jobs, spending, output and income. In the US, the National Bureau of Economic Research (NBER) conducts this research “with no hard and fast rules or thresholds” to determine what they evaluate.
As the word recession has eroded to meaninglessness, US economists are free to discuss any position they like based on the meaning they choose.
Choose your recession wisely
In recent months, a parade of economists and industry leaders have spoken to broadcasters and media outlets to offer their analysis on whether or not a recession is likely. In a retrospective analysis by CNBC, the network summarized just some of the conflicting opinions it recently received.
Steve Hanke, professor of applied economics at Johns Hopkins University, firmly believes the US is headed for a great decline. “We will experience a huge recession in 2023,” he told the broadcaster.
Richard Thaler, winner of the Nobel Prize in Economics, could no longer contradict this. According to Thaler, the US is “not going into anything resembling a recession.”
Yale University’s Stephen Roach told CNBC a recession is coming, but it won’t be as bad as it was in the early 1980s.
To clear up any possible confusion, Steen Jakobsen told viewers that the US is not headed for a recession in nominal terms, even if it is in real terms.
Meanwhile, Charles Schwab’s Liz Ann Sonders says a recession is more likely than a soft landing.
A crash course in soft landings
A soft landing is the term used by the Federal Reserve (Fed) to describe a scenario in which inflation can be brought down without triggering a recession. Increasingly, the idea seems like a fair-weather fantasy with no basis in reality.
In an August 26 speech in Jackson Hole, Wyoming, Jerome Powell appeared to imply that their soft landing was being abandoned. The Fed would now aim for sustained “below trend growth” which is commonly understood as “growth recession”.
To be clear, the Fed will continue to tighten fiscally until the unemployment rate rises, while the government and the National Bureau of Economic Research continue to deny there is a recession.
Bitcoin and the R word
Bitcoin was born out of the last recession cycle in 2009 after the previous year’s banking crisis. If the U.S. economy can ever be officially called a recession or recession-like environment again, it would be the first U.S. recession in Bitcoin’s lifetime.
How Bitcoin reacts to this type of economic environment is understandably a major point of interest for crypto minds, and so far the signs don’t seem to be looking good.
Regardless of how economists or politicians define the R-word, bitcoin prices are either high or low. BTC is currently down 71% from an all-time high of $69,044 set in November. The cryptocurrency is also down 57% year-to-date and 14.8% over the past 30 days.
It seems that bitcoin is by no means immune to economic problems in the economy or in traditional markets. The debate about it rages on.
Bullish BTC proponents like Eric Wall argue that the currency is at or around “fire sell” levels, a position echoed by others in the industry. Earlier last month, senior Bloomberg analyst Mike McGlone stated that Bitcoin is trading at a massive discount.
Outside of the crypto industry, traders are less bullish, with 63% of desks expressing bearish sentiments, according to financial services firm Charles Schwab.
The prevailing logic of many in the cryptosphere is that Bitcoin would do very well in a highly inflationary environment. Recent price activity has seemingly thrown cold water on that idea, but according to Steven Lubka, managing director of Private Client Services at Swan Bitcoin, it all depends on how you define the word inflation.
Lubka states that there is more than one type of inflation. One guy that bitcoin does very well and another that doesn’t. We are currently in the latter inflationary environment.
So how do you define inflation? It’s a whole different rabbit hole.
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