The crypto asset class is showing surprising resilience amid today’s unofficial recession report and higher lending rates.
- Data reported today by the Commerce Department shows that the US economy contracted 0.9% in the second quarter, marking two straight quarters of contraction, which has been the classic – albeit unofficial – definition of a recession.
- Yesterday, the Federal Reserve announced its intention to raise the target federal funds rate by 0.75%, which will raise the cost of debt and borrowing by 2.25% to 2.50% for consumers to try to rein in record inflation .
- Despite this economic one-two punch, broader crypto markets are up 8.55% this morning as the overall valuation of the cryptocurrency sector climbs above the $1.07 trillion level at press time, according to CoinMarketCap.
This morning it was reported that the US economy contracted 0.9% in the second quarter after productivity fell 1.6% in the first quarter. Preliminary data from the Department of Commerce suggests the country is already in recession, albeit unofficially, as the traditional definition of a recession is two consecutive quarters of productivity declines.
This news, coupled with yesterday’s announcement by the Fed that it plans to hike the short-term interest rate on loans by another 0.75% to quell inflation, was widely expected to further hurt risky investments like cryptocurrencies. But that doesn’t seem to be happening this morning.
Despite this one-two punch of bad economic news, the crypto market has surpassed $1.07 trillion in the last 24 hours, up a surprising 8.55% on cryptocurrency exchanges for the same period, according to CoinMarketCap data. At the time of writing, Bitcoin is up 9.5% and has surpassed the $23,500 price point. This is largely due to the fact that the US dollar has weakened in these macroeconomic conditions, giving a boost to cryptocurrencies as an investment alternative.
An official recession is more likely
In June, year-on-year inflation hit another 40-year high of 9.1%, marking the 13th consecutive month of mid-single-digit inflation. This inflation trend has forced the Fed to raise interest rates to try to slow the inflation contagion – at the risk of pushing the economy into a full-blown recession and further weighing on the dollar.
“The fall in GDP in Q2 significantly increases the risk of the economy slipping into recession by the end of the year… the slowing momentum leaves the economy vulnerable to further adverse shocks such as a potential energy crisis in Europe or worsening supply shortages in the US in H2” , said Bloomberg Economist Yelena Shulyatyeva.
After yesterday’s Federal Reserve Open Market Committee meeting, Chairman Jerome Powell said inflation was too high and the labor market was too tight. He also said that we should expect more rate hikes in the near term, but those decisions would be made based on data. Meanwhile, digital assets are enjoying a moment in the sun, despite significant double-digit losses suffered during the current crypto winter.
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