Why is an economic recession bearish for the market?

[WeThePe0ple]

I always assumed that an economic downturn with high inflation would lead to lower confidence in fiat currencies, causing people to run to more reliable stores of value. Traditionally these are precious metals, but crypto currencies could also serve this purpose. This flow of fiat money into crypto, would cause a bullrun with higher crypto prices. That was my idea of it.

But why do legendary investors like Michael Burry predict that we are not at the end of the bear market yet, because of a looming economic recession/depression?

Turkey and Argentina are 2 textbook examples of countries with enormous inflation. In these countries, there is demand for a stable currency.

https://www.dw.com/en/turkey-witnesses-bitcoin-frenzy-amid-economic-turmoil/a-61786507

https://www.bbc.com/news/business-60912789

So the increased demand for crypto is something I am right about.
I just don't see how this doesn't lead to a higher price of the coins.

[jackg]

I think there's the fact it's still emerging, and considered new and risky. This'll probably be the case until its widely accepted and widely used in places (it doesn't have to be done everywhere but as soon as it's done in a city and shows proof it'll keep them stable we'll see this happening).

By accepted I don't necessarily mean it has to be used as a means of payment for goods but could be stored or used in other ways.

The people saying we're going to be in a bear market for a few years are using the past to attempt to determine what's going to happen next (and are also perhaps hoping for the past to repeat itself because it's much easier to trade when you know what's going to happen).

[mk4]

It's because if people are having troubles paying for their daily needs, the last thing they'd want to do is to speculate in volatile cryptocurrencies. Bitcoin being very dominant in a inflationary environment will likely happen in my opinion, but most probably not right now.

[WeThePe0ple]

It's because if people are having troubles paying for their daily needs, the last thing they'd want to do is to speculate in volatile cryptocurrencies. Bitcoin being very dominant in a inflationary environment will likely happen in my opinion, but most probably not right now.

I could make an argument that when people struggle to pay for their daily needs in fiat currency, there is no fiat currency left to invest in cryptos.
I have not invested in any crypto yet, because I believe(d) that banks and governments will simply not allow transactions from crypto to fiat when crypto gets too big.

In 1971, president Nixon forbid the exchange from dollars to gold "in order to protect the dollar".
By the same token I expect governments to prevent exchanges from crypto to currency in the near future.

And when you can not pay for your gas and groceries in bitcoin, and you can't convert your bitcoin to fiat currency, I believe that this is extremely bearish.

[SquirrelJulietGarden]

Nothing is completely safely so don't add all eggs (all your capital) into one asset, even how much do you love and believe in Bitcoin.

Honestly, I believe Bitcoin is a great asset against inflation but it is only true in long term. If you can not hold your Bitcoin till next halvings, and have to sell it in any bear market, you will not have happy exits or happy endings.

Global economic recession is massive and sure it might affect all markets exclusively Bitcoin and crypto market.

[kryptqnick]

Op, I think that purely logically, you're right. In times of uncertainty, people should be looking into something more certain, into a way of saving their wealth if it is very likely to suffer heavily from the global economic recession. Perhaps the problem is that Bitcoin is NOT stable. If a person doesn't have faith that Bitcoin will recover again, the losses with Bitcoin can be higher than from fiat inflation. Also, stability is something more associated with gold, the price of which remains quite stable. Bitcoin requires taking a risk for the sake of potential profits, and maybe priority in uncertain times is not a risky decision but something relatively certain.

[jackg]

In 1971, president Nixon forbid the exchange from dollars to gold "in order to protect the dollar".
By the same token I expect governments to prevent exchanges from crypto to currency in the near future.

And when you can not pay for your gas and groceries in bitcoin, and you can't convert your bitcoin to fiat currency, I believe that this is extremely bearish.

Such a law would be hard to accomplish, I imagine it was back then. There'd then be enouch ways to exchange crypto to currency if that happened or to assets once crypto wasn't allowed to flourish in some areas. I don't think there's one market with significant influence on bitcoin though, I think that's been decentralised a bit too recently (US companies might be the largest public buyers, but even then they don't seem to have that much influence on the price from there when they claim they've bought or sold).

I don't know if areas like Europe will follow the US on such a ban too, there's a chance but there's also something they could gain by watching the US banning it and keeping hedge funds and other companies happier by keeping it (there's already a much less regulated derivatives market in Europe too).

[coolcoinz]

I always assumed that an economic downturn with high inflation would lead to lower confidence in fiat currencies, causing people to run to more reliable stores of value. Traditionally these are precious metals, but crypto currencies could also serve this purpose. This flow of fiat money into crypto, would cause a bullrun with higher crypto prices. That was my idea of it.

It should be bullish. The problem is not all of the people who buy bitcoin do it with their own money. Some take loans to invest or have taken loans to buy other things like stocks or real estate and are now getting destroyed by rising interest rates. These people had to sell bitcoin to pay their loans up and stop losing money to the banks. There's also a group of investors who trade bitcoin by predicting cycles. When bitcoin loses about 50% they sell everything because it could mean a prolonged bear market. To them the economy isn't important. What is important is if bitcoin is in a bull or bear market.

The good part is those people are out by now so what's left is the mostly normal investor, a person who held in 2018 and is not easily scared.

But why do legendary investors like Michael Burry predict that we are not at the end of the bear market yet, because of a looming economic recession/depression?

Burry is a permabear. He was bearish in 2019, 2020, 2021 and he's bearish now.
Also, he's impatient. In 2020 he sold all his gamestop stock right before it exploded in 2021. It's estimated that holding the stock for another 6 months would've made him 1 billion USD.

[KaliLinux]

It's because if people are having troubles paying for their daily needs, the last thing they'd want to do is to speculate in volatile cryptocurrencies. Bitcoin being very dominant in a inflationary environment will likely happen in my opinion, but most probably not right now.

I have not invested in any crypto yet, because I believe(d) that banks and governments will simply not allow transactions from crypto to fiat when crypto gets too big.

This can not be the case for every country, you made an example of the US president Nixon back in '71 and that was Gold and not crypto, there is a risk regardless of which investment but I doubt if that was the same for other locations and let's not forget that there are Governments that have actually embraced Bitcoin as it is now and in locations where this type of situation is already happening, crypto investors have always found a way out like P2P but this is not to say we shouldn't look at other forms of Investing. 

[so98nn]

It's because if people are having troubles paying for their daily needs, the last thing they'd want to do is to speculate in volatile cryptocurrencies. Bitcoin being very dominant in a inflationary environment will likely happen in my opinion, but most probably not right now.

I am positive on this note too but I am not sure things will pan out the same way for crypto currencies. On happy scale crypto is still premature in the eyes of government and world wide summits. They still think printing more money could be better option and imposing this rule and that rule would be far better.

That being said it could happen they will try to banish the whole crypto space so that the money invested in it will be sold off and all the money starts rotating in the bank to bank. The recession is inevitable, it’s gonna happen because that’s the position we have created for ourselves with pandemic outbreaks, stimulus giveaways and wars!

[samuraijin]

that's also my thought that the recent bad economic problems from inflation and rising interest rates or the russia war, should increase people's trust in bitcoin or other cryptocurrencies to be a means of payment or investment, but sometimes not many countries legalize bitcoin as a tool payment, bitcoin should be an alternative to get out of a situation like this, wasn't the economic crisis in 2008 that made satoshi also created this bitcoin as an alternative solution to this situation

[livingfree]

But why do legendary investors like Michael Burry predict that we are not at the end of the bear market yet, because of a looming economic recession/depression?

It is because that there's more to come. The debt of US is in trillion and now, the Saudi Arabia market for oil has increased its price for them while in the other markets like EU, it was decreased and in Asia, it's retained.

And that's for the hope that will make the markets down as they'll have a more expensive gas prices because they've been the source of the inflation rate for most countries.

We don't know what's on it, but we'll see more from it.

By the way, this topic is for Economics board not in Bitcoin Discussion.

[Welsh]

Bitcoin will see increased prices as soon as we start recovering from the recession. Others have touched upon it, but during the very start of a recession, everyone is filled with panic, and due to the drastic changes are usually worried about putting food on the table, let alone investing in a newish cryptocurrency.

So, basically buying power goes down, which results in less coins being moved. Exactly what happens with fiat systems when the market crashes. People don't have the money or the will to spend their money, which results in businesses feeling the pinch. It ultimately takes time, and adjustments by the people, and governments to mitigate the effects. Once we start to recover from the recession a little bit, that's when people have more buying power, and are coping with the recession. Not only that, they'll look to alternatives since they've just lost a lot of money being invested in a fiat system, which is the direct cause for them losing their money.

So, when the market starts recovering, we'll see increased buying, which in turn should increase prices.

[hatshepsut93]

Turkey and Argentina are 2 textbook examples of countries with enormous inflation. In these countries, there is demand for a stable currency.

And Bitcoin is not a stable currency, it tends to have these long bear market or just drop down by 5-10% in a minute without a clear reason why it should do it. People don't want to risk that, and they do have options for storing their wealth in something better than their domestic currency - they use US dollar, Euro, gold, stocks, bonds. Bitcoin is high risk, high reward - and high risk is not what you want to use to store all your wealth in.

[landheer]

In my opinion, as a beginner in bitcoin and crypto, the price of bitcoin and crypto does not have a high price increase, or can it be called a bull run, even though there are more and more buyers? according to the cause, that is, because most of them who invest not for the long term but they invest for the short term, so the price of bitcoin and crypto will not soar or be called a bull run, because it is caused by those who buy a lot and those who sell also a lot, so the price of bitcoin and crypto will not soar very high because of such causes, and because the economy is down then many people are forced to sell their investment assets.

[DapanasFruit]

In my own opinion, at its initial stage of an official global recession, cryptocurrencies would be following the lead of other investment assets but as time goes on the market can see that it can be the best alternative hence there can be a growing interest maybe in the middle of the recession cycle. Of course, with cryptocurrency anything can happen so it would just be better to be hoping for the best and yet preparing for the worst.

[bittraffic]

Two years of this crisis already made a lot of people go hungry and struggle from paycheck to paycheck. The last thing they have in mind is to buy some metal stocks or crypto when they know its price is not growing. They'd think of what is going on right now and they would prefer to buy bread. The bearish market will continue to be bear even on crypto. Unless the US starts lowering the interest rates, it may turn bullish.

If there are people who are investing these days, they are the ones who have tons of money and probably benefitting from the covid crisis.

[Marvell1]

This is the right mindset, bitcoin will in the long run remain the inflation-resistant asset as it was originally designed. The current short-term decline can be understood simply because most of the investors in the market are speculators, so depending on the market situation they will invest in to make a profit. Currently, both gold and crypto are bearish and only the USD is the strongest, so other assets dumping is understandable. People are just speculating for short term profit, in the long term, I believe a lot of people choose bitcoin and gold as safe haven.

[TravelMug]

I guess people just don't want to invest any because of what is going on in the world. But if you look closely, it's a wrong mindset, because crypto specially bitcoin could be a good hedge, as our purchasing fall, might be good to look for assets that will help reduce that risk. And this recession could take years, so it's good to start now and go buy bitcoin, just saying, specially for long term. And this separate smart investors from those newbies who just know what investment is,  however, there action is very different.

[tranthidung]

I always assumed that an economic downturn with high inflation would lead to lower confidence in fiat currencies, causing people to run to more reliable stores of value. Traditionally these are precious metals, but crypto currencies could also serve this purpose. This flow of fiat money into crypto, would cause a bullrun with higher crypto prices. That was my idea of it.

You should know that confidence itself is not enough. Nobody can live with confidence but without money. So in recession, people have to care more about their finance, their pocket, their daily expenses and bills. Hence they will be more hesitating with investment, not only investment into cryptocurrency.

Fortunately, if you don't have issue with your finance, it's very great time for you to DCA your favorite cryptocurrency and wait for a next bull run.

But why do legendary investors like Michael Burry predict that we are not at the end of the bear market yet, because of a looming economic recession/depression?

Firstly, you should not trust all statements from celebrities, influencers without question "Why?". You must ask yourself whether their statement based on any solid analytics or just is spoken arbitrarily and emotionally.

Second, I partially agree that the world economic is in a really bad phase that needs years to recover. It won't recover after one or two years.