Grayscale, the world's largest digital asset company, shared its views on Bitcoin's performance in the context of a potential US recession. The analysis follows a weak jobs report on Friday that reignited concerns about the economic outlook.
Zach Pandl, Research Manager at Grayscale, provided a detailed breakdown of the situation. The unemployment rate rose to 4.3% from last year's cyclical low of 3.4%. According to the analyst, such an increase under the Sahm Rules usually only occurs during recessionary periods.
According to Pandl, financial markets reacted quickly to the expected slowdown in economic growth. Stock prices fell and bond yields declined, especially in cyclical sectors. The yield on 10-year US Treasury bonds fell below 3.8%. Similarly, Bitcoin price fell on Friday and continued its downward trend on Monday.
Bitcoin's future behavior during recessions will largely depend on whether it will be more closely aligned with riskier assets like stocks or potentially more stable store of value assets like gold. Grayscale's current assessment, based on recent correlations and experience with the COVID-19 recession in 2020, shows that the Bitcoin price will likely decline in the event of a US recession.
However, Grayscale notes that downside risks to token prices are now lower compared to the previous cycle, which it attributes to relatively low altcoin valuations, limited credit and leverage in crypto markets, and continued institutional demand for spot Bitcoin and Ethereum ETFs.
Grayscale acknowledges that a recession is a risk, but notes that there is minimal tolerance for a serious downturn. Policymakers are likely to respond with aggressive monetary and fiscal measures at the first signs of economic weakness.
*This is not investment advice.