Investors predict more volatility in digital asset markets as the International Monetary Fund (IMF) predicts slowing global economic growth.
The IMF's July World Economic Outlook update, titled "Gloomy and More Uncertain," identifies "higher-than-expected inflation" and a contraction in global output as indicators of impending weak economic growth. The report states succinctly that economic slowdowns are likely in the near future.
The crypto bear market has been linked to macro factors, prompting crypto analyst Miles Deutscher to warn his 154,000 Twitter followers to expect market volatility.
He noted that incoming earnings reports from Microsoft, Google, Apple, and Meta, as well as US GDP figures, could cause additional turbulence.
Crypto investors are also anticipating an increase in US interest rates this week. According to Bloomberg, the Fed is expected to raise rates by up to 75 basis points, or 0.75 percent, to 2.25 percent to tighten monetary policy and stymie inflation.
On a report from industry observers, the United States will be officially in recession when the country's Q2 GDP figures are released on July 28. A recession is defined as two consecutive quarters of negative GDP growth.
DustyBC, a cryptocurrency market YouTuber, tweeted on July 26 that the global slowdown, combined with potentially reduced U.S. GDP figures, could explain why Bitcoin (BTC) fell below $21,000.
Meanwhile, Umee Brent Xu, founder of Cosmos-based cross-chain decentralized finance (DeFi) hub Umee, asked in a tweet on July 25: "Does a macro recession = a crypto recession?" ”
While the economic outlook appears bleak, the IMF noted that the crypto sell-offs since May were caused by liquidations, bankruptcies, and losses at major firms such as Celsius, Three Arrows Capital, and Voyager Digital Holdings and have had little impact on other financial systems.
This implies that the broader financial systems can significantly impact cryptocurrency, but the reverse cannot be said.
"While crypto assets have seen a dramatic sell-off, resulting in large losses in crypto investment vehicles and the failure of algorithmic stablecoins and crypto hedge funds, spillovers to the broader financial system have been limited thus far."
The total crypto market cap is just over $1 trillion at the time of writing, as per the TCAP Index. Disappointing earnings reports and GDP figures this week could derail these gains, according to Cointelegraph, which reported on July 25 that investors are already seeking shelter in fiat in preparation for the worst.