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A high risk of the global recession could impact crypto markets

A high risk of the global recession could impact crypto markets

Crypto markets have been flying high this year, but a continued downturn in the global economy might clip those wings. 

According to World Economic Forum (WEF) research released on January 16, the International Monetary Fund (IMF) predicts that around one-third of the global economy will enter a recession in 2023. 

“Global economic prospects remain bleak, with the risk of a global recession remaining strong.”

According to the report, firms will confront a “triple challenge” at the start of 2023. High input prices, restrictive monetary policy, and falling demand will all stymie any economic rebound. 

Staff shortages, skill availability, and big cost-cutting are all factors, according to chief economists. All of this has a knock-on effect on the retail consumer at the bottom of the food chain.

Why Crypto Markets Could Be Impacted

Furthermore, the United States’ savings rate has fallen to its lowest level in history, hovering around 2.3%. This metric is used to calculate how much money a person deducts from their discretionary income to invest. This might have a significant influence on crypto assets, which are often seen as high-risk. There will be fewer investors in risky assets such as cryptocurrency if there is less disposable income available. 

A recession is expected to exacerbate this as rising prices pinch more wallets, and only the wealthy can afford to dabble in hazardous cryptocurrency ventures. 

With this in mind, a full crypto market rebound is unlikely in 2023, and consolidation may extend into 2024. 

Only until inflation is under control and living costs are reduced will the broader economy begin to recover. Only then will there be enough retail floating capital to invest in crypto-assets.

Nonetheless, the World Economic Forum acknowledged in a report earlier this month that cryptocurrency was here to stay.

Crypto Market Outlook

So far this year, markets have been climbing, but economists are warning of a bull trap. Today’s overall capitalization has dropped to $1.03 trillion, indicating a small decline. However, the markets have risen 24% since the start of the year.

There is always a Chinese New Year rally, so this one may fade after the holiday season. The heavyweights, like BTC and ETH, have fallen a few percent today, and the other altcoins have followed suit.

 

 

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