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Crypto during a recession: Here's what to expect

Brian Baker, Bankrate.com on

Published in Business News

Bitcoin, the largest cryptocurrency in the world, was created in 2009 during the depths of the great financial crisis. It took a while to gain traction, but it, along with other cryptocurrencies, has since exploded into a major market worth around $1 trillion.

But with the broad crypto market falling sharply from all-time highs reached in November 2021 as the Federal Reserve raises interest rates to combat high inflation, many investors are wondering how Bitcoin and other crypto assets might fare if the economy slides into a recession.

Here’s what crypto investors should expect, per the experts.

Crypto is no safe haven

As investors weigh the possibilities of a recession or a stagflationary environment, many are looking for assets to protect them from the potential storm. But experts say crypto isn’t the place to find it.

“I’m not sure crypto can be considered a safe haven given its volatility,” says Scott Sheridan, CEO of online brokerage firm tastyworks.

 

Popular cryptocurrencies such as Bitcoin and Ethereum have fallen nearly 70 percent from their all-time highs as investors shunned risk assets following the rise in interest rates.

Sheridan said he doesn’t envision a turnaround in crypto prices until volatility, as measured by the VIX, returns to more normal levels.

“Until then, I think the combination of potential alpha in equity markets and the evolving state and subsequent turbulence in crypto are more geared toward speculation than they are shelter from the storm,” he said.

So outperformance will be hard to come by for both equity and crypto investors until recent volatility levels subside.

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