Bitcoin was created after the last major recession in 2009, but this time the rules of the game have changed.
American economists in the post-truth world are no longer able to agree on whether or not a US recession is likely, has begun, or even how to define a recession.
The Federal Reserve (Fed) continues to pursue a policy of aggressive fiscal tightening to combat high inflation, which currently stands at 8.5%, suggesting that a sustained economic contraction is more likely than ever.
If such a scenario should, or should, pass, what does this mean for crypto and bitcoin?
What or which recession?
Until recently, recession meant falling gross domestic product (GDP) for two consecutive quarters. With the US economy for two consecutive 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.
According to the White House, recessions should be identified rather than “looking at the data as a whole” including labor markets, spending, production and income. In the US the National Bureau of Economic Research (NBER) does that research with “no fixed rules or limits” to determine what they are assessing.
With the term recession meaningless, American economists are free to debate any position they like, whatever meaning they choose.
Choose Your Bearish Wisely
Over the past few months a parade of economists and industry leaders have spoken to broadcasters and media outlets to offer their analysis on whether a recession is likely. one in CNBC In a retrospective analysis, the broadcaster summarizes some of the conflicting views it has received recently.
Steve Hanke, Professor of Applied Economics at Johns Hopkins University, firmly believes that the US is headed for a major downturn. “We have a recession going to hit us in 2023,” he told the broadcaster.
Nobel Prize-winning economist Richard Thaler couldn’t disagree more. According to Thaler, America is not entering “anything like a recession.”
Stephen Roach of Yale University told CNBC that a recession is coming, but it won’t be as bad as it was in the early 1980s.
To clear up any potential confusion, Stein Jacobsen told the audience that America is not heading into recession in the slightest of words, even if it is in real terms.
Meanwhile, Liz Ann Saunders at Charles Schwab says a slowdown is more likely than a soft landing.
Crash Course in Soft Landing
A soft landing is the term the Federal Reserve (Fed) uses to describe a scenario in which inflation can be brought down without a recession. Increasingly this notion seems like a fair-weather fantasy that has no basis in reality.
In an August 26 speech in Jackson Hole, Wyoming, Jerome Powell indicated that his soft landing had been abandoned. The Fed will now pursue a continued “down-trend growth”, which is widely understood as a “growth slowdown”.
For clarity, the Fed will continue with fiscal tightening measures until the unemployment rate rises, while the government and the National Bureau of Economic Research deny a recession.
bitcoin and the r-word
Bitcoin was born out of a previous recessionary cycle in 2009 following the banking crisis of the previous year. If the US economy can ever be officially described as a recession or a recession, it will be the first US recession of bitcoin’s lifetime.
How bitcoin reacts to such an economic environment is a major point of interest for crypto heads, and so far, the signs are not looking good.
No matter how economists or politicians may choose to define the R-word, bitcoin prices are either high or low. BTC is currently down 71% from its all-time high of $69,044 in November. The cryptocurrency is also down 57% from the start of the year and 14.8% over the past 30 days.
It appears that bitcoin is in no way safe from economic problems in the economy or traditional markets. A debate breaks out on the matter.
Bullish BTC advocates such as Eric Wall argue that the currency is at or near a “fire sell” level, a position that others in the industry have echoed. Earlier last month, Mike McGlone, senior analyst at Bloomberg, announced that bitcoin was trading at a steep discount.
According to financial services firm Charles Schwab, traders outside the crypto industry are less optimistic, with 63% of desks expressing bearish sentiments.
The prevailing argument by many in the cryptosphere is that bitcoin will perform very well in an environment with high inflation. Recent price action has poured cold water on the idea, but according to Steven Lubka, managing director of private customer services at Swan Bitcoin, it all depends on how you define the term inflation.
Lubka says that there is more than one type of inflation. One type in which bitcoin performs very well and another in which it does not. Right now, we are in a post-inflationary environment.
So how do you define inflation? That’s another rabbit-hole entirely.