The high risk of a global recession could impact crypto markets

The high risk of a global recession could impact crypto markets

Crypto markets have been flying this year, but a continued depressed outlook for the global economy could clip those wings.

The International Monetary Fund (IMF) expects around a third of the global economy to enter recession in 2023, according to a WEF report on January 16.

“The global growth outlook remains anemic and the global risk of recession is high.”

The report added that businesses face a “triple challenge” as we enter 2023. High prices for key inputs, tighter monetary policy and weaker demand will dampen any economic recovery.

Chief economists also see staffing shortages, talent availability and significant cost reductions as factors. All of this has a trickle-down effect for the retail consumer at the bottom of the pile.

Why crypto markets could be affected

Additionally, the U.S. savings rate has fallen to its lowest level ever at around 2.3%. This metric is used to measure the amount of money a person withdraws from their disposable income to set aside for investments.

Don't look now, but the savings rate is at a 17-year low.

Excess liquidity is becoming increasingly rare (and increasingly valuable) pic.twitter.com/lcWV73HuPd

– Jack Duffley (@JackDuffley) January 16, 2023

This could have a significant impact on crypto assets that are generally considered high risk. With less disposable income available, there will be fewer investors in risky assets like crypto.

A recession is likely to have an even wider impact as higher prices squeeze more wallets and only the rich can afford to dabble in risky crypto investments.

Given this, the crypto market is unlikely to fully recover in 2023 and the consolidation could continue into 2024.

Only when inflation is under control and the cost of living falls will the overall economy recover. Only then will there be enough floating capital from the retail sector to risk crypto assets.

Still, the WEF confirmed in a report earlier this month that crypto is here to stay.

Outlook on the crypto market

Markets have recovered so far this year, but analysts warn of a bull trap. There was a slight decline today, with the total capitalization falling to $1.03 trillion. However, markets are up 24% year-to-date.

There is usually a Chinese New Year rally, so this may well fizzle out after the holidays. The majors like BTC and ETH are down a few percent today, and the other altcoins are also on the decline.

.