How the Crypto Market Could be Affected by a Recession in 2023

As the United States and the global economy remain at risk, experts predict the possibility of an upcoming recession due to inflation and the hawkish tone of central banks. If a major recession were to occur in 2023, the cryptocurrency market may experience a distinct outcome.

What Is an Economic Recession & What Will It Mean for the Crypto?

Cryptocurrencies are following the same trends as stocks and bonds. On May 2022, the correlation between trends of cryptocurrency markets with these major US stock indices reached its highest level.

According to this data, the current correlation between Bitcoin and the highest-capitalization altcoins is 3 times higher than for the period from 2019 to 2021. Accordingly, at this point, cryptocurrencies have fully integrated into the financial world market.

This is an indirect confirmation that the decline in financial markets, including stock indices, may lead to a decline in cryptocurrencies.

However, the cryptocurrency market has only existed for a few years, so we cannot rationally compare its dependence on the global economic crisis, as it was in 2001 and 2008.

Accordingly, the decline of the stock market in recent years has led to a decline of the cryptocurrency market and vice versa. These are two interrelated financial instruments that cannot act separately from each other.

How Can a Decline in the Stock Market Lead to the Collapse of Crypto?

As of early 2023, cryptocurrencies have fully integrated into the financial world market and are following similar trends as stocks and bonds. Cryptocurrency markets have reached their highest level of correlation with major US stock indices, with the current correlation between Bitcoin and the highest-capitalization altcoins being three times higher than from 2019 to 2021.

Although the cryptocurrency market has only existed for a few years, experts suggest that it is highly dependent on liquidity, and assets with unstable tokenomics are the most vulnerable in a recession. In 2022, the collapse of LUNA and some other cryptocurrencies occurred against the backdrop of declining stock indices and geopolitical tensions.

However, in summer 2022, despite growing recession risks and inflation rates above 8%, stock indices stabilized, benefiting some companies' financial results. During the same period, Bitcoin and other cryptocurrencies also stabilized, confirming their correlation with the stock market.

If the global economy experiences a recession, the cryptocurrency market could continue its bearish trend that began in late 2021 or early 2022. However, the fall may be less significant, as some investors may diversify their assets and purchase large volumes of stable coins like Bitcoin and Ethereum. Meanwhile, the least liquid cryptocurrencies will be at high risk of collapse, as was the case with the sharp decline in the crypto market capitalization in spring 2022.

Algorithmic stablecoins not backed by fiat money, securities, or precious metals, as well as least-capitalized cryptocurrencies that are not part of the global economic process, are the most vulnerable categories of crypto assets in an economic recession.

To protect themselves from the risks of a collapse in financial markets, crypto users need to prioritize a reliable financial instrument for cryptocurrency payments. In the current realities and risks of an economic recession, the neo-bank Trustee is a safe option that can help optimize costs with cryptocurrency payments. Its favorable transaction terms allow crypto enthusiasts to control their portfolio 24/7 from their mobile smartphones and receive additional bonuses.

Conclusion

While the possibility of an economic recession remains, the cryptocurrency market's dependence on liquidity suggests that a decline in financial markets, including stock indices, may lead to a decline in cryptocurrencies. Nonetheless, the most liquid cryptocurrencies are less likely to be impacted severely, and investors should consider diversifying their assets in case of a recession.

✅ Our Validator - https://stakeme.io/

✅ Twitter (eng) - https://twitter.com/ProNodes_val

✅ Twitter (ru) - https://twitter.com/pro_nodes

✅ Teletype (eng) - https://teletype.in/@stakeme.io

✅ Teletype (ru) - https://teletype.in/@pronodes

✅ Mirror (eng) - https://mirror.xyz/0x58fC64C4d35049dD0Da5a762E325c6B1D9bC9Fa0

✅ Our telegram - https://t.me/pronodes