Bitcoin Drops 22% Amid Recession Fears, Fed Policy Shifts

Bitcoin and other cryptocurrency prices have experienced a decline following their surge in the aftermath of Donald Trump’s election victory. The bitcoin price has dropped to around $85,000 per bitcoin, down from a peak of $110,000 per bitcoin in January. This decline comes as traders seek to protect their investments from a new, unidentified threat.

Federal Reserve chair Jerome Powell has recently warned that the risk of recession is increasing. This warning has sparked significant interest in the cryptocurrency market, particularly in relation to bitcoin. BlackRock’s head of digital assets, Robbie Mitchnick, has predicted that a recession could serve as a “big catalyst” for the bitcoin price. Mitchnick pointed out that historical responses to recessions, such as increased fiscal spending, deficit accumulation, lower interest rates, and monetary stimulus, have typically boosted the bitcoin price. He also noted that recessions can lead to social disorder, which has historically driven up the price of bitcoin.

This week, the Federal Reserve downgraded its economic growth outlook while raising its inflation projection, although interest rates were left unchanged. Fed chair Jerome Powell acknowledged during his post-interest rate decision press conference that while the possibility of a recession has increased, it remains at a relatively moderate level. Mark Zandi, chief economist at Moody’s Analytics, has expressed concerns that international trade tariffs imposed by Donald Trump could push the economy into a recession, stating that the risks are uncomfortably high and rising.

Earlier this month, BlackRock’s chief executive Larry Fink warned that Trump’s trade policies could stoke inflation, dampening expectations for interest rate cuts through 2025 and raising the specter of stagflation—a situation characterized by an economic slowdown coupled with spiraling price rises. Fink, who has been a vocal supporter of bitcoin, led BlackRock in its campaign to get a spot bitcoin exchange-traded fund (ETF) approved in the U.S. through 2023. A fleet of bitcoin funds made their debut in January 2024 and quickly became some of the fastest-growing ETFs of all time. U.S. spot bitcoin ETFs broke $100 billion in net assets for the first time in November, with BlackRock’s iShares Bitcoin Trust (IBIT) now boasting around $50 billion in assets under management.