Possibly -- but it's not something you want to bank on.
Is a recession headed our way? It's certainly easy to make that argument.
Inflation has been causing consumers a world of financial strain for months on end, and now the Federal Reserve is trying to do something about it. The Fed has been steadily raising interest rates since the start of the year, and its two most recent rate hikes were quite aggressive.
The reason the Fed is going this route is that it hopes to spur a decline in consumer spending. And if it makes borrowing more expensive, that's likely to happen.
Once consumers start to spend less, it should narrow the divide between supply and demand. And that should, in turn, drive the cost of living downward.
But achieving that ideal balance is tough. And what may happen is that consumers end up cutting their spending to a drastic degree, thereby spurring a recession and a period of widespread unemployment.
If that's something you're worried about, you're in good company. But you may be less worried if you have an investment portfolio that's loaded with crypto.
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But should crypto really be your backup plan during a recession? Or is there a better way to go?
You don't want to fall back on your investments
The value of your investments -- whether it's digital currencies or stocks you hold in a brokerage account -- can fluctuate at any time. And during a recession, your investments certainly have the potential to plunge. That's why relying on crypto as a cash source to get you through a recession isn't a great idea.
Say your crypto portfolio is worth $5,000 when a recession hits, and then you lose your job a few weeks later. At that point, you might need a few thousand dollars to pay your bills while you wait for unemployment benefits to kick. But if your crypto holdings are only worth $3,000 at that time, you'll risk locking in permanent losses by tapping that investment, rather than sitting tight and waiting for it to recover.
That's why it's generally not a good idea to plan on cashing out investments when emergencies strike. Having separate cash reserves in the bank is a much safer bet, because your principal there is protected. Put $5,000 into a savings account and leave it alone, and you're guaranteed to have $5,000 at your disposal when a need for cash arises.
Is your emergency fund solid?
As a general rule, it's wise to have enough money in an emergency fund to cover at least three months of living costs. If you're not there yet, stop pumping extra money into crypto and instead work on boosting your cash reserves -- because that's the money you should plan to access if you lose your job and need help paying bills.
We don't know for certain that we're in for a recession, and if a downturn hits, it could end up being mild. But don't take the risk of locking in losses in your investment portfolio by looking to crypto as your backup plan. Instead, pad your savings and use that money as your go-to source if you fall victim to a layoff.
FAQs
It May Hedge Against Uncertainty
Does crypto do well in a recession? ›
Its High Volatility and High Correlation to Tech Stocks
Bitcoin's high volatility makes it prone to significant price swings, which can lead to substantial losses during economic uncertainty such as a recession, some experts argued.
Does crypto go up when stocks go down? ›
Many of the factors that affect stock prices also affect cryptocurrency prices. Investors and traders treat cryptocurrency the same way they treat stocks, so prices tend to trend the same.
What is crypto generally positively correlated to? ›
Generally, cryptocurrencies are positively correlated with one another. The correlation coefficient is particularly positive between bitcoin and other crypto assets, which is why crypto prices will usually rise across the board when BTC climbs and likewise falls when it tumbles.
Are we going into a recession? ›
The S&P 500 rallied in the first half of 2024 as investors cheered resilient earnings growth and anticipated that aggressive Fed rate cuts were just around the corner. However, the New York Fed's recession probability model suggests there is still a 61.8% chance of a U.S. recession sometime in the next 12 months.
How does gold perform in a recession? ›
Due to its reputation for being a safe-haven asset, gold tends to perform well during a recession. For example, when the stock market collapsed in 2007, investment demand for gold spiked and continued to rise, and gold doubled in value between 2007 and 2011.
When was the last recession? ›
It is considered the most significant downturn since the Great Depression in the 1930s. The term “Great Recession” applies to both the U.S. recession, officially lasting from December 2007 to June 2009, and the ensuing global recession in 2009.
Which crypto will boom in 2024? ›
Top 10 Cryptos in 2024
| Coin | Market Capitalization | Current Price |
|---|
| Ethereum (ETH) | $287.89 billion | $2,393 |
| Binance Coin (BNB) | $73.99 billion | $507.14 |
| Solana (SOL) | $62.45 million | $133.76 |
| Ripple (XRP) | $30.62 billion | $0.54 |
6 more rowsSep 6, 2024
Cryptocurrencies like Bitcoin can experience daily (or even hourly) price volatility. As with any kind of investment, volatility may cause uncertainty, fear of missing out, or fear of participating at all. When prices are fluctuating, how do you know when to buy? In an ideal world, it's simple: buy low, sell high.
Is crypto riskier than stocks? ›
Is crypto riskier than stocks? Yes, typically cryptocurrencies are considered riskier than stocks due to their high volatility, less regulatory oversight, and their relative newness.
The Fed does affect interest rates and, consequently, inflation. Some analysts think bitcoin's price may increase when the Fed lowers interest rates, and that its price may fall when the Fed raises rates.
What goes up when Bitcoin goes down? ›
The chart below shows bitcoin's market size as a percentage of the broader crypto market – a.k.a. bitcoin dominance (BTC. D on TradingView). When the ratio is trending down, that means altcoins (i.e. crypto investments other than bitcoin) are mostly going up in value versus bitcoin.
How is crypto high risk? ›
Some crypto trading platforms claim to be registered businesses, but this isn't the same as being registered with a securities regulator. Crypto assets are risky investments because their value may rise and fall suddenly and significantly. These changes in value are hard to predict.
Can the Great Depression happen again? ›
Could the Great Depression happen again? It could, but such an event is unlikely because the Federal Reserve Board is unlikely to sit idly by while the money supply falls by one-third.
How to survive a recession? ›
Build up your emergency fund, pay off your high-interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.
Is the US in a recession in 2024? ›
In light of recent economic developments, J.P. Morgan Research has raised the probability of a U.S. and global recession starting before end-2024 to 35% — up from 25% in its mid-year outlook.
What are the effects of the halving? ›
A halving event lowers the reward Bitcoin miners receive for validating transactions by 50%, slowing the rate at which new Bitcoins enter the market.
What does it mean when bitcoin is having? ›
Every four years, on the halving day, the amount of new Bitcoins created gets cut in half. This means that when Bitcoin halves, the reward given to the contributors securing the network is reduced by 50%, directly impacting the rate at which new Bitcoins are introduced into circulation.
What does bitcoin mean? ›
Bitcoin is a form of digital currency that aims to eliminate the need for central authorities such as banks or governments. Instead, Bitcoin uses blockchain technology to support peer-to-peer transactions between users on a decentralized network.
