The US Federal Reserve has raised interest rates aggressively over the past 17 months in a bid to bring inflation back to 2 percent. As a result, most economists were already anticipating a recession at the time. That recession hasn’t happened yet, but a reliable indicator is now emerging that could well change that.
When is the long-awaited recession coming and what does it mean for the Bitcoin price? We will try to answer these questions in this update.
When will the recession start?
If we look at the bigger picture (and the US economy in particular), it still seems a long way from a recession. Despite the interest rate hikes by the US Federal Reserve (Federal Reserve), the economy continues to heat up. However, there is an indicator as early as October 2022 that has predicted EVERY recession since 1955.
It is the inverted yield curve (in technical jargon: inverted yield curve); which has been signaling for a year that a recession is imminent. An inverted yield curve is when the interest rate on short-term government bonds is higher than on long-term bonds.
In the chart above, we see that the difference between 10-year US Treasuries and 3-month Treasuries is 1.22 percent. If you look closely, you can also see that the difference has become smaller in recent months (the green line shows a slight increase again).
We call this a “re-steepening” of the yield curve. The yield curve returns to its normal state, so to speak. If you look closely you can see that in the past recessions started (grey areas) as soon as the green line rose above zero again. Therefore, to determine when the recession will start, we need to keep a close eye on US interest rates, which we certainly do on CI’s Premium Discord.
What does this mean for the Bitcoin price?
It seems that the inverted yield curve could be over in a few months. That would mean (if history is a good indicator of the future) that we are in for a recession soon.
Normally, a recession is not a good development for bitcoin price and we are seeing that price action actually reflecting this at the moment.
For weeks people have been wondering how Bitcoin is struggling to regain its uptrend despite so much good news. The answer probably lies in this macroeconomic development.
Investors can currently snag 5% yields on US Treasuries while bitcoin and other risky assets face a recession. In this respect, it is by no means surprising that Bitcoin is currently in a difficult phase.