Amid fears of a U.S. recession and geopolitical uncertainty that rocked global markets this week, analysts weighed in on the probability of an economic downturn this year and the impact that could have on bitcoin and other cryptocurrencies.

“The fear of a global recession is indeed plausible given the current economic indicators and the recent actions of central banks,” analysts at crypto exchange Bitfinex told The Block via email. “Over the past three months, central banks have executed 35 rate cuts, surpassing the rate cut levels of early 2024. This proactive easing is reminiscent of the 2009 financial crisis, which saw 76 cuts at its peak.”

The Bitfinex analysts highlighted that despite some improvements in the inflation outlook this year, with global inflation levels expected to moderate somewhat, economic growth projections still remain “tepid.”

The International Monetary Fund (IMF) forecast of a slight decline in global growth to 2.9% from 3% in 2024, combined with persistent inflationary pressures, suggests central banks are “moving to stimulate economies to avoid further downturns,” they said.

“The substantial amount of speculative-grade debt maturing in the US in 2024, coupled with falling bond yields, indicates a stressed financial environment. Investors' move to safer assets and the decline in yields are classic recession indicators, reflecting a lack of confidence in sustained economic growth,” they added.

Aurelie Barthere, Principal Research Analyst at on-chain analytics platform Nansen, also indicated the concerns were warranted. In a message to The Block, Barthere highlighted that Eurozone growth has been weak since the 2022 energy shock brought on by the war in Ukraine and hypothetical tariff hikes from the U.S., plus Chinese growth is weakening as its real estate bubble deflates.

Though there is “no clear area of vulnerability” except for elevated equity market valuations, U.S. growth is also slowing, the analyst added. “I can see a scenario where equity and risk assets correct enough to tighten financial conditions and trigger an economic contraction."

“I believe there is a 40% probability for a recession in H2 2024 (30% shallow, 10% hard landing),” Barthere said — above the historical average of 17%.

Fears of an economic recession could have mixed effects on bitcoin and the broader crypto market, the Bitfinex analysts argued.

“Bitcoin BTC +1.48% might benefit as a safe haven asset,” they said. “During economic uncertainty, investors often flock to assets perceived as stores of value. Bitcoin, often referred to as ‘digital gold,’ could see increased demand as traditional markets face volatility.”

However, Binfinex’s analysts aren’t so positive about the impact on other crypto assets. “The broader crypto market, particularly altcoins, might suffer due to decreased liquidity and risk appetite. Investors may become more risk-averse, pulling funds from high-risk assets like smaller cryptocurrencies into safer investments,” they warned.

Valentin Fournier, analyst at digital assets research firm BRN, said that while bitcoin has shown two consecutive days of upward pressure following Monday’s rout, when bitcoin briefly fell below $50,000, and is opening in the green today, strong catalysts are required to push past these negative woes.

In the more immediate term, “initial jobless claims released today could calm economic recession fears and help maintain the positive momentum,” Valentin Fournier noted, adding that alongside next Wednesday’s CPI data, this would provide “a view of how consistently American job creation is going and how much room the FED has to prevent a hard landing.”

Medium-term, potential interest rate cuts, the U.S. election and the possible creation of a strategic national bitcoin reserve if Donald Trump wins are all potential catalysts over the coming months, according to Fournier.

Bitcoin is currently trading for $57,247, up around 4% on Thursday, according to The Block’s Bitcoin Price Page. The largest cryptocurrency by market cap fell around 15% on Monday — the most significant daily decline since FTX collapsed in November 2022. Bitcoin remains 11% down over the past week but is up 33% year-to-date.

BTC/USD price chart. Image: The Block/TradingView.

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