“A sharp recession could trigger another correction in cryptocurrencies,” according to BofA. – Chatborgne

The contraction of the American economy, for the second consecutive quarter, leaves the country in a state of technical recession which, pending confirmation from the National Bureau of Economic Research (NBER), is putting investors on alert, particularly those exposed to risky assets like cryptocurrencies. For the moment, the market does not seem to be echoing a danger, as certain analyzes and the recent behavior of the stock markets suggest, Risk appetite is gaining weight in the market..

However, “even if the United States is not (yet) in recession, the underlying signs are worrying,” says Gilles Moëc, chief economist at AXA Investment Managers. However, another key ingredient of the NBER framework is labor market performance and Moëc says, “Significant job losses are required for a recession to be declared ‘correct’. Thus, “a low number of employment outcomes which are published this week, would probably close the door to a recession”. In any event, “it may be too early for the current slowdown in activity to result in a sharp decline in employment. We may have to wait, which could trigger significant market volatility,” he concludes.

These risks are new to cryptoassets which seem to have discounted idiosyncratic cryptocurrency issues, leading to a deep correction in digital assets over the past 90 days, experts at Bank of America (BofA) say. “Also, the risks related to rising rates, inflation and a mild recession are likely discounted” by investors, they add.

However, “a A sharp recession could trigger another correction in risky assets.including digital crypto-assets. Although token prices have been rising over the past two weeks, digital assets have fallen over 20% since mid-May and remain highly correlated to risky assets,” they comment. While the contraction in GDP in the first half of the year may not constitute a recession, the rest of the year is otherwise. “The mere extension of the current trend in final domestic demand would create the conditions for one, probably in the last three months of 2022,” says Moëc.

As for what exactly will happen in the digital currency market if such a scenario is triggered, experts do not believe that the result will be positive during this semester. The “most prudent position is wait for more negative news“, says Ramiro Martinez-Pardo, CEO of HeyTrade. “Interest rates still have room to rise, and this will drain even more liquidity from the cryptocurrency market,” he adds.

At present, however, and after the cryptocurrency ‘horribilis’ semester, BofA’s capital flow analysis indicates that the market value of digital assets has increased by 11% over the past two weeks, for reach $969 billion. The website stablecoins saw 3 straight weeks of net inflows. The first time since mid-February, as users reconnect with the stock market.

Net inflows on cryptocurrency trading platforms over the past two weeks have only offset 5% of net outflows since the start of April and have followed net outflows for 15 of the previous 19 weeks. “The low supply and volume of net outflows of cryptocurrencies. indicate that investors remain optimistic“, says BofA. Net inflows to ETH platforms strengthened last week, following net outflows in the previous two weeks, “indicating that investors are taking advantage of the optimism surrounding the seemingly imminent ‘Merger’ to take profits”, say the experts.

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“A sharp recession could trigger another correction in cryptocurrencies,” according to BofA. – Chatborgne

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