Bitcoin prices extend recent gains after US GDP report raises recession fears

Bitcoin prices climbed today, hitting their highest in more than a week after headline figures showed the world’s largest economy contracted in the second quarter.

The digital currency, the largest by total market capitalization, passed $24,000 this afternoon, according to TradingView data.

The cryptocurrency hit an intraday high of $24,198.95, as it was up more than 7% from the intraday low of $22,600 it hit near 8:30 a.m. EDT, additional information from TradingView reveals.

The cryptocurrency fell to this level around the same time a Bureau of Economic Analysis report estimated that US GDP shrank at an annualized rate of 0.9% during the second quarter.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

After approaching $24,200, bitcoin prices pulled back a bit, but managed to hold on to most of their recent gains, trading near $24,135.00 at the time of writing.

Financial considerations

This latest BEA data revealed a second straight quarter of contraction, as the country’s economy shrank 1.6% in the first three months of this year.

While two back-to-back quarters of shrinking GDP often signal a recession, the task of formally declaring such a period of worsening business conditions is up to the National Bureau of Economic Research, a nonprofit organization.

The NBER has a Business Cycle Dating Committee, which evaluates various measures of economic activity before deciding whether a recession (or expansion) has begun.

While overall U.S. economic output has weakened, the nation’s job growth has been strong in recent months, with the labor market adding 372,000 net jobs in June, Labor Department figures show.

This healthy increase came after the nation’s employers added 368,000 net jobs in April and 384,000 in May, additional government data indicated.

This robust data may make NBER economists less likely to declare that the US has indeed entered a recession.

Market participants have received these latest reports on GDP and employment growth at a time when measures of inflation have reached their highest levels in decades, with the country’s headline consumer price index (CPI) rising 9.1% in the 12 months to June. strongest increase in 40 years.

Fed policy shifts

Federal Reserve policymakers have pushed benchmark interest rates higher, a development that could further limit economic growth by raising borrowing costs.

The central bank recently raised its federal funds rate by 75 basis points, pushing the range to between 2.25% and 2.50%.

Fed officials may well choose to raise that rate further, as Jerome Powell, chairman of the central bank’s board, said yesterday that the institution is “strongly committed” to reducing inflation to its 2% target rate.

Should the Fed continue to raise the benchmark interest rate, it could potentially provide a tailwind for bitcoin prices.

If fixed-income securities offer higher returns, that could make them more compelling to investors, drawing them away from risky assets like cryptocurrencies and stocks.

If central bank officials continue to engage in aggressive rate hikes, bitcoin could enter uncharted territory, as the digital currency has never existed in a high-interest rate environment.

The first units of bitcoin were created in January 2009, and since then the federal funds rate has never reached 3%, according to figures provided by the Federal Reserve Bank of St. Louis.

This era of persistently low interest rates provides a contrast to previous time periods. The benchmark interest rate exceeded 5% between 2006 and 2007, 6% in 2000 and 10% in the 1980s.

In 1981, the federal funds rate reached more than 19% as the central bank took steps to address particularly high inflation.

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.