Bitcoin and Cryptos Push Higher Overall Despite Recession Fears and Fed's Rate Hike

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KEY POINTS

  • Reported data from the Commerce Department today show that the U.S. economy shrank 0.9% in the second quarter, marking two straight quarters of decline, which has been the classic -- albeit unofficial -- definition of a recession.
  • Yesterday, the Federal Reserve announced its intent to jack up the target federal funds rate by 0.75%, which will increase the cost of debt and borrowing for consumers by 2.25%-2.50% to try and slow record inflation levels.
  • Despite that economic one-two punch, the broader crypto markets are 8.55% higher this morning as the entire valuation of the cryptocurrency sector increases above the $1.07 trillion level according to CoinMarketCap at press time.


The crypto asset class is showing surprising resiliency in the face of an unofficial recession report today and higher borrowing rates.

It's reported this morning that the U.S. economy shrank 0.9% for the second quarter, following the 1.6% reduction in productivity we experienced in the first quarter. The preliminary data from the Commerce Department suggest the country is already in a recession, although unofficially, as the traditional definition of a recession is two straight quarters of productivity declines.

That news, coupled with yesterday's announcement from the Fed that it plans to increase the short-term interest rate on borrowing by another 0.75% to try and quell inflation, was generally expected to further hurt risky investments such as cryptocurrency. But that doesn't appear to be happening this morning.

Despite that double-whammy of dour economic news, the crypto market has pushed above the $1.07 trillion threshold over the past 24 hours and is up a surprising 8.55% for that same timeframe across cryptocurrency exchanges, according to CoinMarketCap data. At the time of writing, Bitcoin is up 9.5%, pushing above the $23,500 price point. This is largely due to the fact that the U.S. dollar has been weakening under these macroeconomic conditions, boosting cryptocurrencies as an investment alternative.

An official recession is more likely to occur

In June, the inflation rate compared to the prior year hit another 40-year high of 9.1% and represented the 13th straight month of inflation in mid-single digits. That inflation trend has forced the Fed to boost interest rates to try and slow the inflation contagion -- at the risk of pushing the economy into a full-blown recession and weighing the dollar down further.

"The contraction in second-quarter GDP significantly raises the risk that the economy will fall into recession by year-end...lagging momentum leaves the economy vulnerable to further adverse shocks such as a potential energy crisis in Europe or intensified supply strains in the second half of the year," said Bloomberg economist Yelena Shulyatyeva.

Following the Federal Reserve's Open Market Committee meeting yesterday, Chair Jerome Powell noted that inflation is too high and the labor market is too tight. He also said that we should expect more rate increases in the near term, but those decisions will be made based on data. In the meantime, digital assets are experiencing a moment in the sun, despite significant double-digit losses suffered during the current crypto winter.

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