The market environment changed quickly. U.S. Secretary of the Treasury Scott Bessent has recently refused to rule out a recession in the United States. What happened and how a potential recession could impact crypto markets?
As soon as Donald Trump took the reins in the White House, he started to pursue an aggressive trade policy. Trump introduced various tariffs against trading partners, including those who were always viewed as traditional U.S. allies.
The chaotic nature of the tariff policy became an additional problem for the U.S. economy. Trump changed the specifics of tariffs, the timing of their introduction, and generally used them as a negotiating tool. As a result, businesses found it hard to plan for the future.
That said, businesses have professional management whose task is to deal with uncertainty. Ordinary consumers got completely confused by the twists and turns of trade wars. Not surprisingly, Michigan Consumer Sentiment declined by 22% from December 2024. Meanwhile, year-ahead inflation expectations increased from 4.3% to 4.9%, raising worries that the Fed may be forced to hike rates to fight inflation.
Robust consumer activity has always been the key driver of the U.S. economy. If consumers are worried about tariffs and cut their expenses, the economy will find itself under pressure. That’s why falling consumer confidence amid trade wars triggered discussions of a potential recession in the U.S. American stocks indices pulled back by 8% from historic highs, indicating that investors have started to take a potential recession into account.
Will crypto markets fall if the U.S. falls into a recession? At the start of the potential recession, such a scenario looks almost inevitable. Recession will put pressure on traditional financial markets, and investors’ appetite for risk will decline. Falling risk appetite is bearish for crypto. The success of spot crypto ETFs will play against cryptocurrencies in this scenario, as investors will sell their assets on traditional markets to raise liquidity.
However, it would have been naive to assume that the Fed will sit idly when the U.S. starts falling into recession. Faced with a significant slowdown or contraction of GDP, the Fed will quickly forget about its problems with inflation and focus on bringing the economy back on the growth trajectory. The central bank will use its favorite tools — cut interest rates and start quantitative easing (QE). In simple terms, it will restart the printing press to boost liquidity in the economy.
The «printing press factor» would be a key bullish catalyst for crypto, as well as for gold markets. The potential recession could lead to a temporary drop in crypto prices that will serve as a strong foundation for the next bull cycle that could take crypto to new highs, boosted by QE and low interest rates.
It should be noted that the potential recession is just one of the possible scenarios for the U.S. economy, which is extremely flexible and has a good chance to navigate trade wars with minimal losses.