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How Would Bitcoin React to a Recession?

This morning, the price of bitcoin has been specifically interesting for the market. The price had originally declined by 3.14% but has since gained momentum and corrected upwards, currently, the price of bitcoin is 1.75% higher than its market open. Despite small wins here and there, the price charts make it clear that the cryptocurrency has struggled this year and sellers have control of the market. So, what has been keeping the crypto prices on the lower end these past few months?

The main factor of pressure on the cryptocurrency sector is still the sharp tightening of the monetary policy of the Central Bank, which has resulted in investors fearing their cost of living will rise. As a result, some investors are abandoning risky assets, including shares of technology companies, properties, and cryptocurrencies. Instead, they prefer to keep additional wealth in cash.

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In addition to this, this past weekend saw further predictions from main market players regarding a “small recession” towards the end of the year and a possible sharper decline in 2023. According to analysts at Nomura Holdings, which is a well-known international market player, the US economy is likely to fall into a small recession by the end of 2022 as the Federal Reserve raises rates and supply disruptions continue. Similar predictions have also been released over the weekend from other investment banks and hedge funds.

So, the question that many are asking is how the cryptocurrency market is likely to react to a recession? Well, if we base it on the past two months, then the answer is; not great. However, having said that, it’s important to note that it isn't just the cryptocurrency sector that has dwindled recently.

Stocks focused on the digital sector, such as MicroStrategy, Coinbase, Silvergate Capital, and others have also been subject to negative impact. MicroStrategy’s losses stand at roughly $1 billion as a result of poor market performance. Last week, it also became known that the cryptocurrency hedge fund, Three Arrows Capital, is exploring the possibility of selling its assets, and the Asian-focused crypto lender Babel Finance announced the suspension of work.

Last but not least, traders have also noticed a correlation between the stock and the cryptocurrency markets. Currently, on a daily basis, the correlation is quite weak, however, over the longer term, the correlation has scored high. This is because both categories are linked with the market’s risk appetite, which is currently low.

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The price movements of bitcoin this morning have slightly slowed when compared to its price movements over the past week. This indicates that traders may be awaiting confirmation from the Fed regarding future plans, as well as the UK’s and Canada’s inflation releases.

Bitcoin’s latest price movement remains downwards both in the short and longer-term. The price has found resistance at the $20,900 mark.

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