US Recession ‘Turning Into a Tailwind’ for Bitcoin: Bitwise Analyst

Bitcoin fell on Wednesday after the U.S. economy shrank for the first time in three years, underscoring recession concerns. 

But an economic contraction might actually be bullish for the asset, according to one analyst.

The growing prospect of a U.S. recession–typically defined as a decline in GDP for two straight quarters–is lifting rate cut hopes as the dollar appears to be weakening, André Dragosch, European head of research at crypto asset manager Bitwise, told Decrypt.

“I think the bull market continues,” he said, acknowledging that recession risks and trade uncertainty were bearish for Bitcoin at first, but are “now turning into a tailwind.”

Bitcoin was recently changing hands around $94,000, a 1% decrease over the past 24 hours, according to data provider CoinGecko. Following Wednesday’s economic snapshot, which showed the economy contracted at an annualized rate of 0.3% in the first quarter, the asset plunged as low as $93,300, as most altcoins also turned red.

When U.S. President Donald Trump began reshaping global trade in February, his willingness to use tariffs led to a decline in risk appetite among investors, Dragosch said. That led to sizable outflows from spot Bitcoin ETFs—and their worst day on record.

At the time, economists feared that Trump’s tariffs could force the Federal Reserve to keep interest rates higher for longer, in order to combat price pressures. Now they fear that Trump’s tariffs are weighing on economic growth to the point where the Fed is forced to intervene and stimulate an ailing economy through lower borrowing costs.

On Wednesday, traders grew more convinced that the Fed will have lowered its benchmark rate to a target range 3.75% to 4% by the conclusion of its July meeting, which would represent two quarter-percentage point adjustments to its current policy rate. Traders now foresee a 58% of the Fed cutting rates to such a degree, from 52% a day prior, according to CME FedWatch.

Lower interest rates tend to benefit risk assets like stocks and crypto due to cheaper borrowing and increased liquidity. However, a recession in the U.S. would likely affect companies’ ability to generate revenue, while Bitcoin isn’t faced with the same valuation crunch, Dragosch said.

“It’s an asset that’s disconnected from the system,” he said of Bitcoin, adding that “systemic risks are not good equities.”

Bitcoin has recently shown signs of decoupling from U.S. stocks, moving higher alongside gold as equities and U.S. Treasuries have faced pressure. The dynamic plays into the theme of de-dollarization, where foreign investors are assigning new risk to dollar-based assets.

Typically, the greenback strengthens during periods of exceptional growth in the U.S. as well as times of economic calamity, a theory often referred to as the dollar smile theory. When U.S. growth is “mediocre compared to the rest of the world” the dollar often weakens, Dragosch said. A sagging shape between two points resembles a smile.

The U.S. Dollar Index (DXY), which measures shifts in the dollar’s value relative to a basket of other currencies, rose 0.23% on Wednesday, according to Yahoo Finance. Although it’s flat over the past month, the index has slid 8.3% year-to-date.

“Bitcoin tends to have a high inverse sensitivity to the dollar,” he said. “If you expect some kind of structural depreciation of the dollar, Bitcoin might be a perfect hedge.”

Edited by James Rubin