Sebastian Sinclair

The US could be headed towards a recession, a potentially unprecedented test for the crypto industry.



Outside of the two-month recession around the Covid pandemic, crypto has never experienced any legitimate economic downturn. The <a href="https://www.stlouisfed.org/on-the-economy/2021/may/mortgage-distress-great-recession" target="_blank" rel="noreferrer noopener">mortgage-fueled</a> “Great Recession” from 2007 to 2009 preceded <a href="https://blockworks.co/news/on-chain-billionaires-buterin-nakamoto" target="_blank" rel="noreferrer noopener">Satoshi Nakomoto</a> launching the Bitcoin network, long before NFTs and Web3.



Predictive models from the New York Federal Reserve point to a <a href="https://www.newyorkfed.org/research/capital_markets/ycfaq#/interactive" target="_blank" rel="noreferrer noopener">68% likelihood</a> of a recession hitting within the next year, a daunting 30% leap from <a href="https://blockworks.co/news/what-a-recession-means-for-crypto" target="_blank" rel="noreferrer noopener">predictions</a> just five months earlier.



The cryptocurrency industry&#8217;s reaction would largely depend on the root cause, duration and severity, according to Rich Rosenblum, CEO of market maker GSR.



“If it&#8217;s a recession driven by a worsening of the banking crisis, it could end up a boon, as crypto is increasingly being seen as a viable alternative to legacy financial systems,” he said. Rosenblum warned that projects would need to focus more on public sales over private deals, as institutional demand may dry up.



If a recession stems from persistent global economic weakness, survival could be challenging for crypto companies, especially those dependent on speculative inflows.&nbsp;



Tokens with real-world impact outside of the industry are likely to be more resilient, Rosenblum said.



<h2 class="wp-block-heading">Recessions are getting shorter</h2>



The good news: The average length of a recession has declined over the centuries.



Granted, the most recent US recession (which went for 18 months) was the longest since the Great Depression — almost 100 years ago, but:



<ul class="wp-block-list">
<li>From 1854 to 1919, a typical recession lasted 21 quarters, or a bit more than five years, data from the National Bureau of Economic Research <a href="https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions" target="_blank" rel="noreferrer noopener">shows</a>.&nbsp;</li>



<li>Between 1919 and 1945, that average fell to 18 quarters, or four and a half years.&nbsp;</li>



<li>Modern day recessions are estimated to span 10 quarters, just two and a half years.</li>
</ul>



Still, some allocators — like Akshat Vaidya, head of investments at Maelstrom, the debut fund of the family office of BitMEX co-founder Arthur Hayes — aren’t confident that crypto could make it through unscathed.&nbsp;



Vaidya told Blockworks he expects crypto to move just like it did during the 2020 Covid crash, &#8220;implode along with the rest of the world come recession, as liquidity vanishes in the cascade of margin calls.&#8221;



That could still lead to a positive outcome over the long term.&nbsp;After all, bitcoin skyrocketed more than 900% in the quarters following the 2020 recession, jumping from below $7,000 to as high as $69,000. 



&#8220;Not only will high-quality projects survive, but they will thrive in the easy money policies that follow,” he said, adding that investors focused on quality could see an opportunity to be “greedy when others are fearful.&#8221;



<h2 class="wp-block-heading">Bitcoin halvings help crypto practice for recession</h2>



Substantial monetary stimulus worldwide during the pandemic renewed one of Bitcoin’s primary value propositions: Hedging against inflation and currency devaluation.



With this in mind, one optimistic take is that bitcoin — which generally leads crypto markets — has <a href="https://blockworks.co/news/bitcoin-halvings-bull-market" target="_blank" rel="noreferrer noopener">historically operated in four-year cycles</a>, on account of its halvings.



Past performance around halvings may not strictly indicate future results, but predictable changes to bitcoin’s issuance could help crypto investors plan to weather the storm.



&#8220;With each halving event where the new supply of bitcoin is reduced by half; every halving event to date has preceded a significant increase in the bitcoin price as well as a correction to follow,&#8221; Jesse Shrader, CEO at Lightining-focused startup Amboss Technologies, said.



On the other hand, government stimulus has shielded parts of more traditional industries, including leading up to and throughout the pandemic recession.



While stimulus has made the business environment seem more stable, it&#8217;s not clear whether the broader economy could withstand dramatic shocks without intervention.



For startups battling a prolonged recession, profit margins and cash flow remain critical, according to Terrence Yang, managing director at bitcoin financial services firm Swan Bitcoin.



“Can you survive several months or even years of a recession? Now is a good time to evaluate whether you are credibly solving a big, urgent problem with a uniquely valuable solution,” Yang said, adding that&#8217;s something few cryptocurrencies have done.



For investors, Yang said bitcoin’s fundamentals in the long-term remain unchanged, especially over horizons for longer than five years.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



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Crypto Has Never Seen a Long Recession — Here’s What Could Happen

Bitcoin miner outflows have reached their highest point in almost a year as BTC struggles to capture $30,000.



Glassnode&#8217;s Bitcoin Miner Outflow Multiple, which tracks the ratio of BTC moved by miners to the amount mined, has reached an 11-month high of 1.104.&nbsp;Back then, BTC was collapsing from a similar valuation to below $19,000.



The outflow metric doesn’t explicitly track funds sent from miners’ addresses to crypto exchanges — which might indicate sales. Still, outflows serve a rough guide for their sentiment: more outflows suggests less holding overall.



Bitcoin has struggled to push and hold above $30,000 for over the past six weeks. BTC is about flat over the day, hovering at $27,680, having slipped around 4.2% across the past five days.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">📈 <a href="https://twitter.com/hashtag/Bitcoin?src=hash&amp;ref_src=twsrc%5Etfw">#Bitcoin</a> <a href="https://twitter.com/search?q=%24BTC&amp;src=ctag&amp;ref_src=twsrc%5Etfw">$BTC</a> Miner Outflow Multiple (7d MA) just reached a 11-month high of 1.104 Previous 11-month high of 1.068 was observed on 16 June 2022 View metric:<a href="https://t.co/rUT3MENeWz">https://t.co/rUT3MENeWz</a> <a href="https://t.co/dvDed0Crx6">pic.twitter.com/dvDed0Crx6</a>&mdash; glassnode alerts (@glassnodealerts) <a href="https://twitter.com/glassnodealerts/status/1655803609559310336?ref_src=twsrc%5Etfw">May 9, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Proof-of-work miners are rewarded with BTC for spending electricity to validate transactions.&nbsp;Higher energy costs, market fluctuations and the need to cover <a href="https://blockworks.co/news/more-crypto-miner-bankruptcy-2023" target="_blank" rel="noreferrer noopener">operational expenses</a> could all be <a href="https://blockworks.co/news/miner-hodling-could-be-over" target="_blank" rel="noreferrer noopener">contributing to increased outflows</a>



<a href="https://blockworks.co/news/bitcoin-halving-a-year-out" target="_blank" rel="noreferrer noopener">Historically</a>, miner selling pressure is often associated with short-term price corrections, as increased supply on the market can lead to temporary imbalances between supply and demand.



That’s best reflected in outflows’ previous high last year, when bitcoin fell as much as 30% across eight days in June.



Publicly-listed Bitcoin miners are indeed <a href="https://blockworks.co/news/miner-hodling-could-be-over" target="_blank" rel="noreferrer noopener">opting to sell more of their mined crypto</a>, as opposed to more stoic holding strategies.&nbsp;



But Bitfinex in an analyst note cited Bitcoin’s recent hashrate record as reason to be hopeful over the short term, as it signals it &#8220;miner confidence in the future value of Bitcoin.&#8221;



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Bitcoin Miner Outflows at 11-month High After Market Rejects $30K

Jocelyn Yang

<div id="highlights-block_62c8a2da13c73" class="highlights">
 <ul>
 <li>Major cryptoassets started the second half of 2022 on an upbeat note</li>
 <li>June’s job report helped boost markets’ confidence, but major markets slipped slightly Friday</li>
 </ul>
 
</div>



Bitcoin gradually gained momentum this week after a prolonged period of rangebound trading. It rallied to $22,000 on Friday morning New York-time before losing a little ground to close at $21,796, up 1.05%. Ether (ETH) traded as high as $1,238, up 0.32% as of 4:00 pm ET.&nbsp;


[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#8831D7&#8243; assets=&#8221;BTC-USD,ETH-USD&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;1mo&#8221; chart_interval=&#8221;1d&#8221;]



The bounceback comes as the US Labor Department released a better-than-expected <a href="https://cms.blockworks.co/strong-jobs-data-and-rising-wages-complicate-feds-inflation-plans/" target="_blank" rel="noreferrer noopener">June job report</a> and showed newly added jobs reached 372,000 while the unemployment rate remained steady at 3.6%. 



“After it became clear that the short-term selling momentum ran out of steam, bitcoin has been stabilizing even as risk-aversion remains the dominant mindset on Wall Street,” Edward Moya, senior market analyst at currency trading firm OANDA, wrote in a Friday note.&nbsp;



US equities dipped slightly on Friday with the S&amp;P 500 closing down 0.08% to 3,899 and the DJIA off 0.15% at 31,339. Tech-focused Nasdaq fell by 0.09% to $156.56, after video game retailer <a href="https://www.forbes.com/sites/paultassi/2022/07/08/gamestop-fires-game-informer-staff-as-it-doubles-down-on-nfts-and-the-blockchain/?sh=6b70af096ae7" target="_blank" rel="noreferrer noopener">GameStop</a> fired its chief financial officer and began layoffs. 


[stock_market_widget type=&#8221;accordion&#8221; template=&#8221;chart&#8221; color=&#8221;#8831D7&#8243; assets=&#8221;^GSPC,^DJI,^IXIC&#8221; start_expanded=&#8221;true&#8221; display_currency_symbol=&#8221;true&#8221; api=&#8221;yf&#8221; chart_range=&#8221;1mo&#8221; chart_interval=&#8221;1d&#8221;]



Key commodities ticked up Friday. Brent crude oil for September delivery rose 2.23% to $106.98 a barrel as of 3:32 pm ET, while gold&#8217;s price climbed up 0.09% to $1,741.20 per ounce. Natural gas, though, fell by 3.87% to $6.05 per 1,000 cubic feet, according to <a href="https://www.wsj.com/market-data/commodities" target="_blank" rel="noreferrer noopener">Wall Street Journal</a> market data. 



Global markets remained steady, despite the shock of the assassination of Japan’s former prime minister Shinzo Abe, who was shot at a political event early Friday morning. Tokyo’s <a href="https://indexes.nikkei.co.jp/en/nkave/index/profile?idx=nk225" target="_blank" rel="noreferrer noopener">Nikkei 225</a> ended flat at 26,517.19, up 0.1%. The MSCI International ACWI Price Index dipped to $434.80, down 0.16% in the past 24 hours as of 3:35 pm ET. 



The US dollar barely budged against the Japanese yen — up 0.05% — and the euro rose to $1.018, up 0.2%.&nbsp;



In the decentralized finance (DeFi) space, Uniswap’s token rose 1.79% to $5.8, while Aave&#8217;s token went up 2.16% to $71.72. MakerDAO’s token slid -0.51% to $974.17.



<h3 class="wp-block-heading">Top Stories</h3>



<a href="https://cms.blockworks.co/crypto-lender-voyagers-marketing-materials-under-fdic-scanner-report/" target="_blank" rel="noreferrer noopener">Crypto Lender Voyager’s Marketing Materials Under FDIC Scanner</a>



<ul class="wp-block-list"><li>Following its bankruptcy filing this week, news emerged that crypto lender Voyager had changed phrasing on its website about customer funds being insured by the Federal Deposit Insurance Corporation.</li><li>The crypto lender claimed that customers would be able to access funds “after a reconciliation and fraud prevention process” is completed.&nbsp;</li></ul>



<a href="https://cms.blockworks.co/celsius-farmed-out-funds-to-defi-degen/" target="_blank" rel="noreferrer noopener">Celsius Farmed Out Funds to DeFi Degen</a>



<ul class="wp-block-list"><li>Celsius sent over $500 million to be managed by a prominent DeFi “whale” known as “0xB1.”</li><li>Data shows the trader or group of traders ran the Ethereum wallet beginning with this prefix, which has sent and received between $1.33 billion and $1.95 billion over its existence.</li></ul>



<a href="https://cms.blockworks.co/latest-in-crypto-hiring-binance-us-hires-cfo-to-help-it-chart-ipo-path/" target="_blank" rel="noreferrer noopener">Latest in Crypto Hiring: Binance.US Hires CFO To Help It Chart IPO Path</a>



<ul class="wp-block-list"><li>Binance.US appointed Jasmine Lee to be its new chief financial officer. </li><li>Algorand Foundation added two executives this week, including one who spent more than 20 years at JPMorgan.</li></ul>



<h3 class="wp-block-heading">Going Forward</h3>



Markets are eyeing June’s Consumer Price Index (CPI) report release next week. Crypto exchange Bitfinex’s analysts are watching whether “a buoyant cryptocurrency market over the past 24 hours” will carry through to more buying interest in July.&nbsp;



“An inherent resilience that cryptocurrency has displayed in recent weeks in the face of a wave of liquidations and solvency issues has come to the fore today as the market enters the green zone,&#8221; Bitfinex’s analysts told Blockworks in an email. &#8220;Hedge funds betting on wider contagion and market capitulation could be licking their wounds as bitcoin and [ether] both clock up impressive gains,” the analysts noted.  



“Bitcoin has been bolstered by an increased appetite for risk, as evidenced by a four-day winning streak in the US’s S&amp;P 500 where battered technology stocks have also rebounded,” they added.



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Market Wrap: Bitcoin Rally Continues With Rise to $22,000

Casey Wagner

<div id="highlights-block_62c740c56ef72" class="highlights">
 <ul>
 <li>Digital assets and stocks trended slightly higher Thursday after the Fed’s latest hawkish, public stance</li>
 <li>Fed officials agreed in June interest rates may need to increase at a faster pace to beat back inflation — likely resulting in a 75 basis point hike in July, or higher, in the estimation of a analysts speculate</li>
 </ul>
 
</div>



Coming off of the latest US Federal Reserve minutes Wednesday, both cryptocurrencies and equities saw a slight bounce during trading hours on Thursday, but the bear market is far from over, analysts say.&nbsp;



James Butterfill, head of research at digital asset-focused investment firm CoinShares, wrote in a recent research <a href="https://blog.coinshares.com/there-is-more-pain-to-come-in-the-crypto-markets-d9588457fb07" target="_blank" rel="noreferrer noopener">note</a> that bitcoin is “increasingly being seen as an interest rate sensitive asset,” adding the Fed’s “aggressive moves” in terms of raising rates could have triggered the cryptocurrency’s recent dip. A correction has been “needed,” in Butterfill’s estimation “ to flush out irrational exuberances” lingering from the long-running bull market. 



Added ButterFill: “We do not believe this market rout has finished just yet, the combination of a continued hawkish Fed and likely failures in the exchange and mining sectors could well push prices lower in the short-term.”



Regulatory officials agreed last month that interest rates may need to increase at a faster pace to combat modern-day record inflation, likely triggering a 75 basis point hike in July, or higher, some analysts speculate. Futures markets taking directional bets on rate rises, however, have largely priced-in the likelihood of a raise no higher than 75 basis points.&nbsp;



“Interest rates impact all financial assets, this is no different for cryptocurrency,” Daniel Keller, co-founder of decentralized blockchain Flux, told Blockworks. “Most in the crypto space are a bit numb to the ebbs and flows of the conventional market, however; we have seen major changes ‘priced in’ to blockchain-based assets that are traded 24/7/365.”



Bitcoin and other cryptos, which were once seen as a hedge against inflation for their relatively uncorrelated trading patterns, are no longer the safe haven some once believed, Keller added.&nbsp;



In May, the <a href="https://cms.blockworks.co/cryptos-correlation-to-equities-dips-following-all-time-highs-in-may/" target="_blank" rel="noreferrer noopener">correlation</a> between bitcoin and the tech-heavy Nasdaq broke 0.8 for the first time — bitcoin’s tandem trading to the S&amp;P 500 also hit similar levels in early May. In June, the correlation between bitcoin and the S&amp;P 500 fell to around 0.5, according to Coin Metrics <a href="https://charts.coinmetrics.io/correlations/#435" target="_blank" rel="noreferrer noopener">data</a>. A coefficient of one means the corresponding assets are completely aligned, while a negative-one reading signals the opposite. 



“The reactionary pullback to rate increases will continue to impact the emerging and disruptive tech sector moving forward until the adoption curve has reached critical mass,” Keller said. “I will also note that this is the opportunity to enter new markets in a clear corrective cycle. In the blockchain space, we live for these moments.”



Plus, Chris Kline, chief operating officer at Bitcoin IRA pointed out, rising rates and inflation impact the labor market.&nbsp;



“A big thing folks should probably be watching is layoffs, and when are they coming,” Kline said. “That&#8217;s my big question, because it has to happen. And it&#8217;s not just crypto, tech stocks are taking a beating this year.”&nbsp;



If cryptos continue to correlate to technology equities, the road to recovery will be long, according to Nicholas Colas, the co-founder of Datatrek Research.&nbsp;



For the Nasdaq to regain its November highs, the index would have to rally 41% from Wednesday’s close. For the S&amp;P large-cap tech sector, which peaked in December, to return to a record market capitalization would necessitate a 36% jump.&nbsp;



“When will US tech stocks get back to their November/December 2021 highs?,” Colas said. “Exactly as long as it takes the S&amp;P 500 to get back to its highs, because tech…is such a large part of the S&amp;P 500 (27% and 24%) that it is hard to see the two diverging very much.”&nbsp;



Still, this also means tech ought to outperform during the next bull market, Colas added.&nbsp;



“The bottom line here is straightforward: Whenever you think stocks have bottomed, consider tech as a long-term overweight,” Colas said. “Growth is a scarce commodity, even in an economic/market cycle recovery, and tech is best positioned to deliver it.”



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.