Is a recession coming? What should you do?
I’m sure we’ve all heard about the great depression and its effects on the global economy, which is a current rising topic in recent weeks. Since the previous recession in 2008, it has been a long time since we’ve witnessed such a phenomenon, which is keeping many of us on our toes as we wonder how badly it will affect our crypto assets. Although many of us are dreading its arrival, it is ultimately still a part of a healthy economic cycle that we can’t escape from. However, that does not mean that we should sit back and wait for it to pass either.
What is a recession?
A recession refers to an extended period of significant economic decline, which typically happens every 5 years. There are various factors that could trigger a recessionary phase, such as overheating economies or unexpected bursts in asset bubbles that could cause an adverse market shock to the global economy.
Various signs can suggest an incoming recession, including inflation, soaring interest rates, or having a continuous down economy for more than 6 months, which we have been experiencing a bulk of it in recent times. Additionally, we are able to utilize metrics such as GDP or unemployment rates to evaluate and form judgments on this matter.
During a recession, you can expect to see stagnation or reductions in income levels, as the stock market plummets, undoubtingly affecting the entire world population. If this is making you worry, fret not, as a recession usually lasts for 11 months on average, and we have yet to receive any confirmation on whether it has officially started.
What does this mean for the crypto market?
As no crypto holder in this world has experienced a full-blown recession, we can begin by considering the few scenarios that may play out. There are currently mixed sentiments in the market that suggests a differing point of view.
Cryptocurrencies were created to transform the traditional financial market that proved to be lacking. With a recession, individuals have less incentive to keep their money in traditional financial mediums and instruments, suggesting that there could potentially have a new inflow of money from the finance sector.
However, while such a conclusion is ideal for many of us, there are various factors that could possibly weigh all asset classes down. This could be due to various reasons such as how recessions are often accompanied by a reduction in purchasing power of money, which often results in little to no price action in the crypto market.
Cryptocurrencies were founded at the end of the last recession in 2009. This would mean that we do not have any historical data to predict how it will impact the crypto market in the next recessionary phase. With multiple leading indicators suggesting a forthcoming recession, it is crucial that we start considering necessary steps as there is no way to avert it. What do you guys think?