Bitcoin Under Pressure: A Recession Looms Over May

While Bitcoin tests $97,000 and reaches 64.85% dominance, headwinds are on the horizon: recession. Indeed, a massive recession could hit BTC

The fate of Bitcoin hangs in the balance as May approaches, bringing with it both the threat of a global recession and escalating tensions between the United States and China.

As the market navigates these turbulent waters, the outcome of trade talks between Beijing and Washington could propel BTC to new highs or, conversely, trigger a descent into the red.

Bitcoin Faces Headwinds as Recession Looms

While Bitcoin hovers around $97,000 and enjoys a 64.85% dominance among cryptocurrencies, several headwinds threaten its bullish momentum. Among them, a massive recession could strike as early as this summer.

This scenario is unfolding rapidly with a sharp drop in corporate profit outlooks, registering the most significant decline since 2020. In this context, the development of trade relations between the United States and China is crucial for investors.

The threat of a no-deal scenario is growing with the potential termination of tariff exemptions on certain Chinese imports, such as auto parts and small parcels valued under $800.

This move would further escalate trade tensions and could have a significant impact on Bitcoin's price. According to calculations by Factor, a global macro research firm, BTC could experience double-digit losses without an agreement this May.

However, this extreme scenario remains unlikely. Both powers have no economic interest in slowing their trade, and an agreement or compromise around a reciprocal 10% tariff seems more realistic.

Trade Deal or Further Tariffs: A Pivotal Choice

The outcome of these tariff discussions will largely depend on the willingness of both parties to reach a compromise.

The threat of a no-deal scenario, while extreme, highlights the importance of May in determining the future of Bitcoin and the broader crypto market.

"If the United States and China fail to reach a trade deal by May and threaten to escalate tariffs further, we expect U.S. stocks to fall 10% to 15%, and Bitcoin to decline 15% to 20% from current levels," Factor stated in a recent report.

"If they manage to strike a trade deal this spring, we anticipate further gains of 10% to 15% in U.S. stocks and 15% to 20% in Bitcoin from current valuations."

Highlighting the close correlation between Bitcoin and technology stocks, Factor's analysis predicts steeper losses for speculative assets in the event of a no-deal scenario.

"In a no-deal scenario, we also expect high-yield bonds and emerging-market debt to decline by 10% to 15%, while investment-grade bonds are expected to fall by 5% to 10% from current levels," the firm added.

"In contrast, we anticipate a modest rise of 5% to 10% in U.S. Treasury bonds from current yields."

Bitcoin Could Benefit From Stagflation

Despite the threat of a global recession, some experts believe that Bitcoin could benefit from a stagflationary scenario.

"I think Bitcoin is likely to correct with other risk assets in the coming months as the global economic outlook deteriorates further and we expect a mild recession in the second half of the year," said Sebastien Payet, founder of crypto and Web3 research firm DeepChain.

"But I also think that Bitcoin is likely to rebound more quickly than other risk assets as it is used by traders to hedge against inflation and diversify their portfolios."

However, Payet acknowledges that the outlook for Bitcoin remains uncertain due to its strong correlation with technology stocks.

"The strong correlation between Bitcoin and technology stocks makes it difficult to predict how the cryptocurrency will perform in the coming months," Payet noted.

"However, I think that the outlook for Bitcoin is ultimately linked to the outlook for the global economy and the outlook for inflation."

Moreover, Payet highlights the threat of systemic risks linked to a global economic slowdown, which could heavily penalize speculative assets, including Bitcoin.

"I think that there are a few systemic risks that could have a significant impact on Bitcoin in the coming months," Payet concludes.

"The most pressing risk is the threat of a global economic slowdown. A slowdown could lead to declines in asset prices and trading activity, which would have a negative impact on Bitcoin."