The crypto markets have been soaring this year, but an ongoing depressed outlook for the global economy could clip those wings.
According to a January 16 WEF report, the International Monetary Fund (IMF) expects around a third of the world economy to enter a recession by 2023.
“Global growth prospects remain anemic and the risk of a global recession is high.”
The report added that businesses face a “triple challenge” in early 2023. High prices for key inputs, tightening monetary policy and weakening demand will dampen any economic recovery.
Chief economists also see staff shortages, talent availability and significant cost reduction as factors. All of this has a trickle-down effect on the retail consumer at the bottom of the pile.
Why crypto markets could be affected
In addition, the US savings rate has fallen to its lowest level of around 2.3%. This metric is used to measure the amount of money a person deducts from their disposable income to set aside for investing.
Don’t look now, but the savings rate is at its lowest point in 17 years.
Excess liquidity is becoming rarer (and increasingly valuable) pic.twitter.com/lcWV73HuPd
—Jack Duffley (@JackDuffley) January 16, 2023
This could have a big impact on crypto assets that are generally considered high risk. If there is less income available to everyone, there will be fewer investors in risky assets like cryptocurrencies.
A recession is likely to affect this further, as higher prices squeeze more wallets, and only the wealthy can afford to dabble in risky crypto investments.
With this in mind, it is unlikely that there will be a full recovery of the crypto market in 2023, and the consolidation could continue until 2024.
Only when inflation is under control and the cost of living comes down will the broader economy begin to recover. Only then will there be enough free float from the retail sector to risk crypto assets.
However, the WEF acknowledged that cryptocurrencies are here to stay in a report earlier this month.
Crypto Market Insights
Markets have been rising so far this year, but analysts are warning of a bull trap. There has been a slight pullback today, with total capitalization falling to $1.03 trillion. However, the markets are up 24% since the beginning of the year.
There is usually a Chinese New Year rally, so this one may fizzle out after the festive period. The big ones like BTC and ETH are down a couple of percent today, and the other altcoins are also in retreat.
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