How economic downturns can hit cryptocurrencies.

The US economy is on the brink of recession. Some economic indicators have shown clear signs of the possibility of such a collapse. Fear has greatly affected the investor landscape. Some investors have turned to safe assets, and many are preparing to do so in the near future. Cryptocurrencies, known as risky assets, are more likely to suffer. Let's break it down. Why should the crypto industry care?

Sahm Rule Indicator: Signs of a recession are mounting.

The Real-time Sahm Rule Recession Indicator is an outstanding indicator that can provide a clear signal about the onset of a recession. In April 2023, the value was at baseline, at 0.00. Since then, it has been steadily increasing. By January 2024, it had risen to 0.20. It reached 0.43 in June. It touched a yearly high of 0.57 in August. The signal is believed to have been triggered by the July jobs report.

Product data analysis: The curve is inverted

When analyzing the 10-Year Treasury Fixed Maturity Minutes vs. 2-Year Treasury Fixed Maturity chart, we can see an inverted curve. It first slipped below the threshold in July 2022. For the past two years, the value has struggled to rise above its fundamental level. Now the value stands at 0.02 – a little higher than the beginning, but considering the fact that on April 5, 2021, up to 1.56, what we see now is not very impressive. An inverted yield curve occurs when long-term interest rates fall below short-term interest rates.

Stock market volatility affects Bitcoin.

There are indications that stock market volatility can affect cryptocurrencies. The VIX index – an indicator used to measure market volatility – has risen to levels seen during the Covid-19 crisis and the 2008 financial crash. If stocks take a big hit, there is a high possibility that cryptos will feel the negative impact.

What does this mean for Crypto?

It is important to understand how investors will react if the proposed rate cuts are implemented by the Federal Reserve. If it reverses the current trend and removes the fear among investors, it will have a huge positive impact on the crypto landscape.

Also Read: SEC Crypto Fines To Reach $4.7 Billion By 2024 — A Record-Breaking Fall!