Analysts at the world’s largest bank have published a forecast on the likelihood of a recession in the US. What does it mean for cryptocurrencies?
A catastrophe in the US economy next year is unlikely to take place: according to Goldman Sachs experts, the probability of recession in the US in 2025 has fallen to 20 per cent. Analysts base their conclusions on the fresh reports on unemployment in the country and the prospects of reducing the base lending rate by the Fed leadership. Overall, U.S. stocks rose last week on the back of retail sales data for July – the biggest jump in the figure since the beginning of 2023 was recorded. Data from the US Department of Labour on August 15 also showed that the number of people filing new claims for unemployment benefits fell to a one-month low. What conclusion can be drawn from all of this for the digital asset industry?
The collapse of cryptocurrencies on 5 August 2024 was one of the toughest in the history of the market. Back then, Bitcoin collapsed to $49,000, with top alts losing tens of per cent of their value in a day.
Cryptocurrency market crash in early August
There were many reasons for the collapse at the time, but the key ones were analysts’ fears over a possible recession in the US economy, the collapse of the Asian market, the risk of a full-scale war between Israel and Iran, and the declining chances of Donald Trump winning the US presidential election, which supports the niche coin.
Since then, fears of possible problems in the global economy have become less pronounced. However, this risk still cannot be called irrelevant.
What will happen to the cryptocurrency market?
A team of Goldman economists led by Jan Hatzius said that the probability of recession in the American economy has decreased from 25 to 20 per cent. It is quite possible that in a few weeks this estimate will drop to 15 percent – it may be influenced by the data in the labour market reports for August – they will be published on September 6. Accordingly, at least for the time being, the future prospects seem attractive.
The fresh data on the US Consumer Price Index (CPI), which was published last Wednesday, was certainly a reason for positivity. It turned out that this indicator was 2.9 per cent year-on-year, which indicates that the US Federal Reserve's goal of reducing the inflation rate to the target level of 2 per cent is approaching. In addition, the rate itself fell below 3 per cent for the first time since early spring 2021, which is also a positive trend.
If the US manages to survive a year without recession, investors’ faith in the economy will be strengthened. Against the backdrop of general stability, they will become much more active in high-risk investments, which are also represented by the cryptocurrency industry.
Changes in the Bitcoin BTC rate in the scale of a 1-hour chart
However, the opinions of other experts regarding the Goldman Sachs study are mostly negative. For example, IG Markets analyst Tony Sycamore said in an interview with Cointelegraph that the reduced likelihood of recession was only a “small adjustment” in the overall scale of things. The news is unlikely to lead to significant capital inflows into high-risk assets along the lines of digital assets, the expert suggests.
Markus Thielen, head of 10x Research, also takes a cautious view in the context of a continued bullrun. Here is his quote.
Traders could use a cut in the benchmark lending rate. However, there is also a risk that this will only bring the recession closer. In such a case, we expect Bitcoin to correct as it did in 2019.
This probability is based on the fact that the US Federal Reserve could be late with base interest rate cuts, the first of which is scheduled for September. Still, the situation in the labour market suggests that it was necessary to improve the situation in the economy earlier. So now there is a possibility of new problems, despite the attempts to drastically correct everything.
US Fed Chairman Jerome Powell
During the 2019 base interest rate cut by the Federal Reserve’s leadership, Bitcoin reacted by rising about 20 per cent. However, two subsequent cuts had the opposite effect – eventually, the value of the main cryptocurrency collapsed by 35 per cent.
However, during that period, the market was in a bearish trend, that is, a prolonged decline in the coin industry. Therefore, counting on a sharp reversal of the cycle solely because of the actions of bankers would not be the best solution.
US Federal Reserve’s benchmark lending rate
Most interestingly, the probability of recession according to JPMorgan analysts is much higher at 45 per cent. Bruce Kasman, the banking giant’s chief economist, confirmed that political instability in the US has so far prevented the figures from being lowered to more optimistic values.
Cryptocurrency investors during the bullrun
Meanwhile, Bitcoin once again failed to stay above the $60,000 level earlier this week, but today it hit a local high at $61,400. Such swings do not prevent QCP Capital experts from declaring quite optimistic prospects for the main cryptocurrency and the market as a whole. Here is a statement on the matter, which Decrypt quotes.
We remain constructive and bullish for the rest of the year. One particularly encouraging factor is the market’s resilience to various “supply shock” news for both Bitcoin and Etherium.
This term refers to a sharp reduction in the supply of a certain asset - in this case, we're talking about BTC and ETH. Obviously, the main reason for this is the activity of buyers of shares of spot ETFs for the named cryptocurrencies in the United States, the acquisition of which leads to the purchase of coins by the issuing companies of exchange-traded funds. Also, the rate of issuance of new bitcoins decreased on 20 April 2024 by 50 percent during the halving procedure: now for a new block in the network they give 3.125 BTC instead of 6.25 coins, as it was from May 2020.
According to Ryan McMillin, chief investment officer at Merkle Tree Capital, the inability of the BTC exchange rate to overcome another important resistance has less to do with macroeconomics. It’s all about investors’ and traders’ fears about payments to Mt. Gox creditors.
The volume of funds on the Mt. Gox wallet
The rehabilitation plan for the exchange, which collapsed a decade ago, runs from the beginning of July until the end of October. As part of the plan, Mt. Gox creditors will receive billions of dollars in crypto – BTC and BCH. It’s likely that some recipients of the coins are getting rid of them after all.
According to Arkham Intelligence, Mt. Gox has about $2.7 billion worth of bitcoins in its wallets.
Obviously, recession risks are still relevant for the US economy, but they have somehow decreased in recent weeks. Now all attention will be focused on the comments of the Fed leadership and further decision of the bankers on the base interest rate. There is still a chance of its reduction by 50 basis points at once.
Want to keep up with other useful news? Join our crypto chat. Just hurry up, because the final phase of the bullrun for the coin industry will definitely not last forever.
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