Economists Divided Over US Recession, So What Now Bitcoin?

Bitcoin was created after the last great recession in 2009, but this time the rules of the game have changed.

In a post-truth world, American economists are now unable to agree on whether a US recession is likely or not, has started or not, or even how to define a recession.

The Federal Reserve (Fed) continues to pursue a policy of aggressive fiscal tightening to combat high inflation, currently at 8.5%, suggesting that a sustained economic downturn is increasingly likely.

If such a scenario were to pass, or has passed, what does it mean for crypto and Bitcoin?

What or what recession?

Until recently, a recession referred to two consecutive quarters of falling gross domestic product (GDP). With the U.S. economy on track for two consecutive quarters of falling GDP, a White House blog asked, “How do economists determine if the economy is in a recession?”

Answer: by any other measure than two consecutive quarters of falling GDP.

According to the White House, a recession should instead be identified by taking a “holistic look at the data,” including the labor market, spending, output and income. In the United States, the National Bureau of Economic Research (NBER) conducts this research, with “no set rules or thresholds” to determine what they assess.

With the word recession eroded to meaninglessness, American economists are free to debate any position they like based on whatever meaning they choose.

Choose recession wisely

Over the past few months, a parade of economists and industry executives have spoken to broadcasters and media outlets to offer their analyzes on whether or not a recession is likely. In a CNBC retrospective analysis, the broadcaster summarized only some of the conflicting opinions they had recently received.

Steve Hanke, professor of applied economics at Johns Hopkins University, firmly believes that the United States is headed for a major recession. “We’re going to have a terrible recession in 2023,” he told the broadcaster.

Nobel Prize-winning economist Richard Thaler couldn’t disagree more. According to Thaler, the US is not entering “something resembling a recession”.

Stephen Roach, of Yale University, told CNBC that he thinks a recession is coming, but it won’t be as bad as the early 1980s.

To clear up any confusion, Steen Jakobsen told viewers that the US is not headed for a recession in nominal terms, although it is in real terms.

Meanwhile, Liz Ann Sonders at Charles Schwab says a recession is more likely than a soft landing.

A crash course in soft landings

A soft landing is the term the Federal Reserve (Fed) uses to describe a scenario where inflation can be reduced without causing a recession. Increasingly, the notion seems like a fair-weather fantasy with no basis in reality.

In a speech on August 26 in Jackson Hole, Wyoming, Jerome Powell seemed to indicate that their soft landing was being abandoned. The Fed will now pursue sustained “below-trend growth”, widely understood to mean a “growth recession”.

To be clear, the Fed will continue fiscal tightening until unemployment rises, while the government and the National Bureau of Economic Research continue to deny that there is a recession.

Bitcoin and the r-word

Bitcoin was born out of the last recession cycle in 2009 after the banking crisis the year before. If the US economy can ever be officially described as in recession or in a recession-like environment again, it will be the first US recession in Bitcoin’s lifetime.

How Bitcoin reacts to this kind of economic environment is understandably a major point of interest for crypto-heads, and so far the signs seem to be that they are not good.

Regardless of how economists or politicians choose to define the r-word, Bitcoin prices are either high or low. BTC is currently down 71% from an all-time high of $69,044 in November. The cryptocurrency is also down 57% since the start of the year, and 14.8% in the last 30 days.

It appears that Bitcoin is by no means immune to financial problems in the economy or traditional markets. The debate on the matter is raging.

Bullish BTC advocates such as Eric Wall argue that the currency is at or around “fire sale” levels, a position echoed by others in the industry. Earlier last month, senior Bloomberg analyst Mike McGlone declared that Bitcoin is trading at a huge discount.

Outside the crypto industry, traders are less bullish, with 63% of desks expressing bearish sentiment, according to financial firm Charles Schwab.

The prevailing logic held by many in the cryptosphere is that Bitcoin will do very well in a high inflation environment. Recent price activity has seemingly poured cold water on this idea, but according to Steven Lubka, Managing Director of Private Client Services at Swan Bitcoin, it all depends on how you define the word inflation.

Lubka states that there is more than one type of inflation. One type where Bitcoin works very well and another where it doesn’t. Right now we are in the latter inflationary environment.

So how do you define inflation? That’s a whole other rabbit hole.

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