Time to hoard Bitcoin? Global recession forecasts are now a reality

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Bitcoin’s deflationary model could prove vital for hodlers as World Bank officials warn of a likely global recession in 2023.

Economists at the Washington-based organization forecast global GDP growth to rise 1.7% in 2023, about 100 basis points lower than the 2022 forecast of 2.9%.

World Bank economist says worst-case scenario is now benchmark

In addition, the leading economist for the Global Prospectus Report said the bank’s worst-case scenario from six months ago is now its benchmark, with further interest rate hikes expected to rock economies.

“The global economy is on a knife edge and could easily slide into recession if financial conditions tighten,” Ayhan Kose said. The bank added that a 1% rise in global interest rates would cut its baseline forecast for GDP growth from 1.7% to 0.6%.

Source: Bloomberg

The US Federal Reserve is likely to introduce less severe rate hikes this year than in 2022, which saw four increases of 75 basis points. Falling unemployment and rising wages in December 2022 suggest that the US economy is reacting to policy tightening, which investors hope will ease in 2023. The December 2022 US consumer price index, which the Federal Reserve uses as a gauge of inflation, will be released on January 12, 2022. A lower number will mean the Fed’s tightening policies are working, reducing the risk of aggressive hikes in 2023.

Even if the economies don’t technically go into recession, the euro zone and the United States will likely experience a subjective slowdown, Kose said. Several factors, including Russia’s invasion of Ukraine, high interest rates, high inflation and falling investment, contributed to the lender’s pessimistic outlook.

After severe contractions in developing countries during the pandemic, the World Bank expects investment in these regions to remain at 3.5%. He expects growth to stagnate through 2024.

Earlier this month, the Managing Director of the International Monetary Fund predicted that a third of the world will experience a recession in 2023.

Bitcoin Hodlers Should Do Well, Data Shows

Crypto investors are hoping Bitcoin realizes its potential as a deflationary currency that defies central bank tightening efforts.

Every 210,000 blocks or four years, the Bitcoin algorithm reduces the issuance of Bitcoin for each successfully mined transaction block. This software mechanism helps to control the scarcity of the asset. Higher demand propels the price of Bitcoin and increases incentives for miners to keep the network secure. The algorithm currently rewards miners with 6.25 BTC for each successfully mined block. This reward will drop to 3,125 BTC in April 2024.

Simply put, Bitcoin’s monetary policy is set by software rather than a central authority.

While Bitcoin has followed stock markets lower for most of 2022, it has not depreciated like the US Dollar over long periods of time.

Between 2011 and 2021, data from Bloomberg shows that while the overall CPI (including food and energy costs) increased by 28%, Bitcoin’s value fell relative to the CPI, so whatever cost 1 bitcoin in 2011 cost 0.004 satoshis in 2021. A satoshi is one hundred millionth of 1 bitcoin. In other words, Bitcoin’s value increased as the dollar devalued.

Source: Bloomberg

Therefore, Bitcoin hodlers with a time horizon of five to ten years before the recession are likely to be the safest.

To be[In]Latest Bitcoin (BTC) analysis from Cryptos, click here.

Disclaimer

BeInCrypto has reached out to a company or individual involved in the story for an official statement on recent developments, but has yet to receive a response.

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