Recession in Europe: what to expect in the cryptocurrency sector?
Europe is expected to experience a recession in the first two quarters of 2023, according to Bloomberg experts. According to a recent study, experts considered the chance of recession to be 60%. So, what does this mean for the cryptocurrency market?
Many economists believe that Europe is on the approach to a recession. The impacts of the Covid-19 pandemic, and the energy crisis contributed to this. Previously, the European Central Bank increased interest rates to address the crisis. Is it possible to repeat the feat?
A recession is a drop in economic activity that affects the entire economy, lasts longer than a few months, and typically affects GDP, real income, employment, industrial output, and sales.
Why is the bank hiking interest rates?
The regulator tackles inflation by boosting interest rates, causing the stock market and cryptocurrencies to plummet. According to the most recent Organization for Economic Cooperation and Development (OECD) estimates, Europe will experience the most dramatic shifts, with a growth of only 0.3–0.35% in 2023.
What to do?
To fight inflation, which is expected to peak at 9.6 percent by the end of the year, experts estimate that the European Central Bank (ECB) will hike its deposit rate by 75 basis points to a top of 2 percent by February. Nonetheless, many believe that the ECB will not be able to return to its 2% inflation objective until 2025.
Eurostat announced on September 16 that euro area inflation in August reached a new high of 9.1%. It increased by 0.6% month over month. In the European Union as a whole (including regions that use non-euro currencies for domestic payments), inflation reached 10.1% in August, up from 9.8% in July.
“In turn, the bank raised its benchmark rate by a record 75 basis points in September, to 1.25 % per year, and committed to continue hiking it if required.”
Cryptocurrency as an inflation hedge?
Following the 2008 subprime mortgage crisis, the first cryptocurrency was created. Satoshi Nakamoto expressed his frustration with the too-centralized structure that contributed to this crisis at the time. The first crypto was considered a reliable system that does not require the permission of centralized institutions.
Conclusion
We shouldn’t anticipate miracles in the cryptocurrency industry. The connection between the cryptocurrency market and US indexes is proof. Surprisingly, the cause is their popularity and skepticism of traditional assets.
“Partially due to the current state of the global banking system, cryptocurrencies have seen a significant increase in new users.”
Bearish sentiment will probably remain dominant in the cryptocurrency market during the next year. However, the recovery will occur sooner than in the stock markets, in early 2023 or late 2023, before the halving of BTC.
