Recession Fears Surge: What Consumers and CFOs Expect – How It Could Impact Bitcoin and the Crypto Market

Over the last few months, fears of a recession have hit truly high levels, with consumers and corporate CFOs getting ready for a recession. In the latest CNBC CFO Council survey, conducted from March 10 to March 21, 75% of CFOs described themselves as “somewhat pessimistic” about the U.S. economy, and this dramatically differs from attitudes toward the end of 2024. Additionally, consumer confidence has fallen to 12-year lows as worries about the stability of their incomes, jobs, and businesses increase.

Despite a positive outlook for their own industries, most CFOs cannot say the same about the overall economic outlook. For the first time in the survey’s history, CFOs gave “Don’t know” as the answer to which stock market sector had the “best growth potential.”

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There are many factors behind this growing pessimism, with U.S. trade policy being the main external business risk cited by 30% of the respondents. Inflation remains a concern, even though it has decreased over the past few years from 8% to 2.8%, which is still above the Federal Reserve’s 2% target. Reduced consumer demand ranks as the second and third most common concern among CFOs, cited by 25% and 20% of them respectively. As one CFO described the situation: “complete chaos, without an endgame strategy.”

Even with those challenges, the majority of CFOs think that if a recession does happen, it will in all likelihood be mild or moderate. But many remain divided about the economy’s longer-term trend, with 90% agreeing the Dow Jones Industrial Average will retest 40,000 before testing 50,000 again.

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The Ripple Effect on Bitcoin and Crypto Markets

Historically, Bitcoin (and the overall crypto markets) tends to trade higher when the average participant is more willing to take on risk.

Bitcoin has been heavily correlated with the S&P 500 over the last few years as it has gained more institutional adoption. 

For example, both the equities market and Bitcoin experienced significant downturns during major events: in 2020 during COVID-19, in late 2021 and 2022 during the inflation crisis, and recently amidst recession fears. Currently, the S&P 500 is down roughly 7.5% from its highs, while Bitcoin is down 20% from its all-time highs.

Economic Slow Down Effect

When it comes to a recession, one of the main drivers is consumers not spending money, or in other words, not exchanging their cash for goods and services.

The velocity of M2 money stock tracks the flow of money within the economy. While the overall trend has been downward since the late 1990s, there have been periods of rebounds—for example, during COVID in 2020. The printing of money and stimulus checks to citizens increased the number of transactions.

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Recently, this activity has started to slow down, which is why there have been many recession-related headlines and discussions.

While Bitcoin has had strong catalysts in recent times, such as ETF approval, institutional backing, countries adopting it as a currency of exchange, and the U.S. recently establishing a Bitcoin reserve—these catalysts can often be mere noise in the short to mid-term if liquidity is not flowing into the markets.

What to Watch: Key Indicators for Bitcoin and Equities in the Coming Weeks

To keep it simple, the two most important data points to watch in the next few weeks are how equities hold up against recession fears, as discussed. If equities continue to fall, historically, as shown, Bitcoin tends to follow risk-on markets, so we can expect that to play out again.

However, if equities hold up or consolidate in the next few weeks, that could potentially give Bitcoin the room to move back up toward ATHs, as it has the catalysts mentioned before.

Next, you should be watching global liquidity flows. You can find this metric on TradingView by using the following tickers: WALCL and M2V. These metrics track the Fed's balance sheet and M2 velocity.

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As long as the Fed's balance sheet remains in a Quantitative Tightening stance, Bitcoin and other risk-on markets will likely face pressure as they attempt to trade higher.

Once this metric reverses, we can expect a potential strong rally—but that is not the case currently. While a QT environment makes it harder for risk-on assets to trade higher, it does not mean they CANNOT trade higher.

Main Takeaway

As the markets navigate through uncertain times, patience is key. Given the current data, the likelihood of massive gains in stocks and other risk-on assets in the short to mid-term appears low. While conditions may change, it's important to remain cautious and wait for clearer signals before expecting significant upside.

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