What happens to crypto in a recession?

Crypto's behavior in a recession is hard to pin down, because it has lived through almost none. In the one clear US recession since crypto became widely traded, in 2020, prices crashed alongside stocks and then recovered as the Federal Reserve eased policy. That single episode, plus the 2022 slowdown scare, is the main evidence, and it does not support the idea that crypto is recession proof.

Is crypto recession proof?

The record so far says no. The National Bureau of Economic Research (NBER), which dates US business cycles, puts the Great Recession from December 2007 to June 2009. Bitcoin's genesis block was mined on January 3, 2009, according to Decrypt, so crypto barely existed as a market then.

The next recession ran from a February 2020 peak to an April 2020 trough. NBER called it the shortest US recession on record, at two months. NBER describes a recession as a significant decline in activity spread across the economy, judged on depth, breadth and duration rather than a single formula.

What happened to crypto in 2020?

On March 12, 2020, as coronavirus fears hit global markets, bitcoin fell about 23% by 9 a.m. Eastern time, with ether down more than 30%, Fortune reported. The sell-off undercut the claim that bitcoin acts as a safe haven in a crisis.

Three days later, on March 15, the Federal Reserve cut its policy rate to 0 to 0.25% and announced at least $700 billion of Treasury and mortgage bond purchases. A year after the crash, Cointelegraph noted that a rally had been running for about 11 months, and one analyst it quoted credited the Fed's swift support for markets with starting it. How closely crypto and stocks have moved together since then is covered in does crypto follow the stock market.

What happened to crypto in 2022?

The US economy shrank in the first two quarters of 2022, by 1.6% and then 0.9% in early estimates, meeting the common rule of thumb for a technical recession. But the Congressional Research Service noted that unemployment was low, at 3.6%, and that the economy kept adding jobs. NBER did not declare a recession.

Crypto still fell into a long downturn, covered in what is a crypto winter. An IMF working paper found that tighter US monetary policy pushes crypto prices down through the same risk-taking channel that affects stocks, contradicting the idea that crypto hedges market risk. That points to interest rates, rather than the recession label, as the bigger driver. The rate link is explained in how interest rates affect crypto.

Does crypto do well in a recession?

History is too short to say. What the evidence does show is that crypto has tended to trade like a risky asset when markets are under stress, falling hard and fast, and that its recovery in 2020 coincided with emergency support from central banks.

Past moves are not a guide to future ones, and crypto prices can swing sharply in either direction.