Key Takeaways
- Fred Wilson wrote about the present economy in a blog post titled ‘How This Ends’ and stated his opinion that recession could last until the end of 2023.
- The increasing correlation between the equity market and crypto indicates the impending recession is bound to affect the crypto market.
Venture Capitalist Fred Wilson took to avc.com to pen down his thoughts on the current economy, recession, and asset price bubble. “I suspect we are either in a recession right now or headed to one, brought on by tightening money supply/higher rates that are being used to control inflation. That recession could easily last until the end of 2023”, reads his blog post titled ‘How This Ends.’
In early 2021, he wrote a blog post with the same title where he said,” When economies recover, and interest rates also rise, the air will come out of the asset price bubbles that have built up, and the go go markets will hit the brakes.” The new blog post talks about how venture capitalist has been using the early 80s recession as a mental model to better understand the present economy.
“The early 80s had a double-dip recession (one in 1980 and another one for 18 months in 1981 and 1982). The economy was weak for 3 years at the start of the decade. And the latter half of the decade was one of the best economies in modern times,” he writes.
The blog post with the picture of the price chart of the NASDAQ during the early 80s recession shows how the prices did not start to rise until the second half of 1983, when the recession was slowly ending. He ends his blog post urging his users to stay patient and ‘hang out for a while.’ “We need to see the economy slow down and inflation slow down. We need to see stocks bottom out and hang out there for a while. And we need to be patient. None of this is going to happen fast.”
The correlation between crypto and NASDAQ or the equity market has been strengthening as many traders are now viewing stocks as a hedge against inflation, just like bitcoin. While BTC hit an all-time high and rose above 50% in 2020, equity markets suffered major losses during the period between January and March 2020 before going back to the normal state as the Federal Reserve stimulated traditional markets with freshly printed money.
BTC’s increasingly strong correlation to U.S. stocks – indicates that its performance will likely depend on what the broader markets do. Therefore, the risk of a recession might spell trouble for the cryptomarket. The notion that Bitcoin’s decentralised nature might present a recession-proof solution to fiat currency inadequacies is also heavily debated.
Jeff Dorman, chief investment officer at Arca, believes that during a recession, digital assets might see a drop in prices in the short term. He further adds,” digital assets create value through brand loyalty and network growth as opposed to equity and debt, which represent a claim on assets. Given this backdrop, it’s highly possible digital assets are the only asset class that a recession wouldn’t negatively impact.”
Many analysts state that during an extended recession, a positive price movement with Bitcoin will likely happen. They further state the rest of the crypto market might face headwinds as investors will continue to move risk off and find it harder to raise funds in a tighter lending market.
