Crypto entering the first recession. Is it over?

It was a crazy and busy week for the markets following the FOMC meting and GDP second quarter release. FED raised rates 0.75 % points in accordance with investors expectations which caused a relief rally in the markets. S&P 500 closed up with a monstrous rally, up 4.26 % for the week, Nasdaq 4.70 % and Bitcoin performed even better closing 8.63 % higher. FED expressed flexibility in their future guidance on raising rates according to their incoming data which somehow calmed the markets down and injected some dopamine, in the same time expressed their commitment to fight inflation and raising rates even more aggressively if inflation continues higher.

Seems like that the majority of investors are betting on Jerome Powell willingness to stop raising rates as soon as the inflation reading comes in little lower and other economic data are likely to worsen. Unemployment is still strong , however as many pointed out each recession that the US entered in the past was met with low unemployment levels as per chart below, and the unemployment levels had a sharp rise shortly after. Therefore the FED comments on strong employment and that the US is not in a recession yet, after two negative quarters of GDP doesn’t make much sense for me. Yes, it could be a shallow recession but still counts as one, and no other explanation from White House is needed.

Unemployment levels sharply rises each time the US enters a recession

Percentage wise both quarters are negative from previous one in US GDP ,consumer confidence and spending are trending lower, together with consumer savings as a % of disposable income that falls of the cliff, reaching levels not since 2008.

US-GDP readings visits negative territory for two consecutive quarters

Even last year consumer spending kept the US economy going and not entering a recession. As spending makes up almost 70% of US economy , the strength of Us economy by looking at the chart below starts shaking contrary to Jerome Powel statements.

Consumer spending
US personal savings reached levels not seen in the last 14 years

With the data currently available and the gloomy economic outlook I don’t think that bull market returned. We had a nice rally but bear markets are famous with rip off rallies that surprises many on the upside, and keep your hopes in check, and possibly fool you in so you jump into the train quickly. That’s not to say that you can’t make gains while trading short or medium term. Certainly you can make enormous gains in bear markets rallies, as Ethereum its up 100% from the June 18th low, and other large caps scores similar gains. The opposite its true for bull markets, when most of the days markets are up, reaction to bad news can cause fast and significant drops, and shortly after the rally resumes.

To conclude, August the last month of the summer characterizes as a more quiet period as institutional investors and traders are away taking holidays, FED takes a break too and everyone is back in September when we have more clarity about the macro outlook and fireworks could start again. As a consequence of the last FED meeting the remaining investors are more positive, and further gains can be seen in all markets through August .

Fear and greed index slowly approaching neutral levels, signaling the optimism mentioned above following FED decision.

From September onwards I expect another leg down , when we could revisit new lows and that could mark the capitulation moment in the crypto space ,when the remaining unexperienced investors walks away, losing hope ,and calling the industry a total scam, and that would probably coincide with the S&P 500 revisiting pre Covid-19 highs. That could also be the moment of decoupling when the crypto space slowly find his own way of trading.

S&P 500 still over extended when we zoom out for the last 12 years

Since 2008 the FED was always been able to fuel the economy with QE every time trouble hit the markets. This time is different as global inflation runs extremely hot with some countries already experiencing hyperinflation, unless the US wants to achieve some similar outcome.

This inflation outlook really worries me and highlights the importance to protect yourself against inflation. Each of us will have to make a decision, be either hard assets, Gold or Bitcoin. If you zoom out and check Bitcoin performance since his existence definitely played a role as a digital Gold ,and outperformed every other asset. Many critics when they argue against Bitcoin as an inflation hedge/digital gold speaks referring to short term , or they live in a country with a stable currency and developed economy. But if you address the question from a different perspective, perhaps someone living in a country highlighted in the picture above, their opinion about Bitcoin might be totally different. So next time when you hear the question , is Bitcoin fulfilling the role of digital gold? You ask which country are you referring to, and on what timeframe?

Happy Sunday everyone!! If you share the article I will deeply appreciate it and will encourage me to write more.

Disclaimer: I must warn you that some ideas could be my own biased views, however, I will do my best to provide you with an objective view of the specific topic/subject. I am not a financial advisor, and all articles will have strict educational purposes only.

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Crypto entering the first recession. Is it over? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.