Recessions in the United States have historically been turbulent times for investors. Economic downturns often bring falling asset prices, rising fear, and difficult choices about where to invest. This guide compares the performance of both asset classes in past U.S. recessions, including the COVID crash and the 2022 slump. We look at correlations, highlight where crypto outperformed or lagged, and break down the risks of investing in both asset classes. Should you buy crypto or stocks in a recession? Here’s what to know.
KEY TAKEAWAYS
➤ Bitcoin often drops hard in recessions but can rebound faster and outperform traditional markets during recovery phases.
➤ Stocks tend to decline during recessions but remain more stable and historically recover over time.
➤ Bitcoin could become a better recession hedge if it consistently decouples from traditional markets.
➤ A balanced portfolio that includes stocks, crypto, and cash (improves resilience and flexibility during economic downturns) is ideal.
- Crypto vs. stocks in a nutshell
- Stock market performance in past recessions
- Crypto and stock market correlation in recent downturns
- When crypto outperforms stocks (and vice versa)
- Risk analysis: Crypto vs. stocks in a recession
- Portfolio strategies for a recession
- Crypto or stocks: Which fits your portfolio better?
- Frequently asked questions
Crypto vs. stocks in a nutshell
| Factor | Crypto | Stocks |
| Volatility | Extremely high; frequent 10%+ daily swings; sharp drawdowns | Moderate to high; S&P 500 rarely drops more than 3% in a day |
| Correlation in downturns | Increasingly positive; often falls with stocks during recessions | High internal correlation; moves with economy and earnings |
| Liquidity | 24/7 markets but can dry up fast; no circuit breakers | Deep liquidity; exchange safeguards; circuit breakers in place |
| Investor protection | No regulatory backstop; funds often uninsured | Strong SEC oversight; SIPC protections for brokerage accounts |
| Underlying value | No cash flows or earnings; value depends on network and sentiment | Based on company earnings, assets, and fundamentals |
| Adoption level | Limited institutional adoption; mostly retail-driven | Broad-based; institutional and retail participation |
| Behavior in panics | Prone to sharp sell-offs; driven by sentiment and leverage | More stable; institutional buyers may step in |
| Recovery potential | Can outperform in rebounds (e.g., 2020, 2023); high upside | Slower recoveries but consistent over long-term |
| Regulatory risk | High; unclear rules and global crackdowns possible | Low; well-defined regulatory structure |
| Role in portfolio | High-risk satellite asset; small allocation advised | Core long-term holding for most portfolios |
Stock market performance in past recessions
➤ The stock market’s behavior during recessions has followed a familiar pattern: sharp declines driven by fear, uncertainty, and falling corporate earnings.
Historically, the S&P 500 has dropped significantly during major U.S. downturns. The next section covers some examples of how it has performed during key periods in recent history.
Major stock market crises since the 1970s
- 1973–1975 (Oil crisis and stagflation): The S&P 500 fell roughly 48% from January 1973 to late 1974 amid high inflation, an oil embargo, and economic stagnation. Stocks eventually began recovering as inflation eased and monetary policy tightened.
- 2000–2002 (Dot-com crash): A speculative bubble in tech stocks burst, leading to a recession in 2001. The S&P 500 dropped about 49% from its 2000 peak to its 2002 trough. The Nasdaq Composite lost even more, with many overvalued internet stocks collapsing completely.
- 2007–2009 (Great Recession): Triggered by a housing market collapse and widespread financial failures, the S&P 500 plunged approximately 57% from late 2007 to March 2009. This was one of the most severe crashes in modern history. While government interventions helped stabilize markets, the recovery took years.
- Early 2020 (COVID-19 pandemic): The S&P 500 fell about 34% in just over a month as lockdowns and panic gripped the global economy. However, this downturn proved brief. Stimulus measures and rapid policy responses fueled a fast rebound, with markets reaching new highs by the end of the year.
The inevitable bounce-back
Despite these steep declines, the encouraging reality is that equities have eventually bounced back from every past U.S. recession. History shows that the S&P 500 and Nasdaq have always recovered to their pre-recession levels (and beyond) given enough time.
➤ For instance, even after the Great Recession, U.S. stocks began a steady climb and by 2013 had regained their 2007 peak. This historical resilience underscores a key point: while recessions hurt in the short run, the stock market’s long-term trend has been upward.
Investors who held a diversified stock portfolio through those recessions were ultimately rewarded when the economy healed.
Crypto and stock market correlation in recent downturns
Cryptocurrencies like Bitcoin did not exist in earlier recessions, but recent downturns have shown how they react during broad market stress. One pattern has been clear through much of the first half of this decade: crypto moves in sync with stocks during risk-off periods. This undermines the once-popular idea of Bitcoin as an uncorrelated “safe haven.”
(Although, as of April 2025, there are some murmurs about Bitcoin showing early signs of decoupling from the stock market — more on that later).
Before 2020: Little correlation with stocks
From 2017 to 2019, Bitcoin’s daily price moves were largely independent of the S&P 500. The correlation coefficient between them hovered near zero (~0.01), and Bitcoin was often described as “digital gold” — a potential hedge during stock market turmoil.
➤ Many analysts still compare Bitcoin’s long-term potential to that of gold in 2025, especially in its role during economic stress. If you are weighing Bitcoin against gold specifically, here’s our detailed BTC vs. gold comparison that breaks down how both assets perform during uncertainty.
COVID crash: Correlation spikes sharply
That narrative shifted during the March 2020 COVID-19 crash. Bitcoin plunged alongside equities as investors fled risky assets across the board.
As a result, Bitcoin’s correlation with the S&P 500 jumped to 0.5–0.6, compared to near-zero levels pre-crisis. At the peak of the sell-off, the correlation briefly reached 0.6, which indicated that Bitcoin and stocks were moving almost in lockstep.
Post-COVID: Crypto behaves like tech stocks
The correlation trend continued. In 2021, both stocks and crypto surged on the back of loose monetary policy and investor optimism.
However, as inflation rose and the Federal Reserve began aggressively hiking rates in late 2021 and into 2022, both markets reversed course. Bitcoin and tech stocks were hit hard in parallel, with correlations at times exceeding 0.7 (which is extremely high by historical standards).
Analysts began noting that traders were treating Bitcoin similarly to high-growth tech stocks. As a result, rather than acting as a diversifier, crypto was amplifying the same macro risks affecting equities.
In the post-COVID market, Bitcoin has more or less behaved like a high-volatility tech stock than a defensive asset.
➤ Therefore, should another U.S. recession hit, it’s perhaps reasonable to expect crypto and stocks to fall together rather than assuming crypto will offset losses in your equity portfolio.
That said, there might be a twist — or so it seems based on recent developments.
Early signs of crypto decoupling
If you’ve been hoping crypto would break away from stocks, early April 2025 offered a small but promising sign of that shift.
While the Nasdaq dropped over 10% in a single week — triggered by new U.S. tariffs — Bitcoin held its ground and even gained slightly. That week, Bitcoin rose 1.29% while stocks fell sharply.
Analysts now point to ETF inflows, on-chain accumulation by long-term holders, and cold storage trends as structural supports for Bitcoin’s price. And chances are institutional players are increasingly treating Bitcoin as a macro hedge — something to hold during volatility rather than dump with the rest of the market.
➤ It is, however, worth mentioning that true decoupling would require a sustained low correlation between Bitcoin and traditional indices like the Nasdaq or S&P 500. But, April 2025 could mark the early stages.
Some researchers even trace this trend back to 2018, when studies first suggested that crypto markets behaved differently from forex or equities.
If the trend holds, you could be looking at a major step forward for Bitcoin: not just as a high-risk tech bet but as a maturing, standalone financial asset.
When crypto outperforms stocks (and vice versa)
Cryptocurrency is a relatively new asset class, but recent downturns and recoveries provide a window into how it compares to traditional markets, such as equities.
In some cycles, crypto has delivered massive gains relative to equities. In others, it has suffered far steeper losses.
2018: Crypto slumps alone
Crypto can also crash even when stocks don’t. In 2018, the U.S. economy was growing, and the S&P 500 finished roughly flat. Bitcoin, however, plunged over 70% as its post-2017 bubble burst. That downturn was driven by crypto’s internal cycle — not the broader economy.
2020: Shared crash, but crypto roars back
During the March 2020 COVID panic, Bitcoin and stocks crashed together— Bitcoin dropped nearly 50% in days, mirroring the S&P 500’s rapid decline. But the rebound was more dramatic for crypto. This was one instance when the crypto vs. stocks standoff came decisively in favor of the former.
➤ Bitcoin surged over 1,020% from its March 2020 low to its March 2021 high, while the S&P 500 gained about 54% in the same period. Crypto holders who held their nerves through the downturn and didn’t panic sell eventually saw far stronger returns.
2022: Stocks fall, but crypto crashes harder
In 2022, rising inflation and aggressive rate hikes triggered a broad sell-off. The S&P 500 fell about 18%, but Bitcoin lost over 60%, with smaller coins hit even harder. Beyond macro pressure, crypto faced its own crisis: exchange failures, stablecoin implosions, and shaken trust.
Stocks outperformed simply by losing less. For a balanced investor, equities preserved far more value than a crypto-heavy portfolio.
2023: Crypto rebounds faster
As inflation cooled in 2023 and the Fed paused rate hikes, markets recovered. Stocks regained ground — S&P 500 climbed around 20–25%. Bitcoin, meanwhile, bounced more than 140% off its lows.
➤ Once again, crypto showed its “high-beta” behavior in this period. It fell harder in downtrends but climbed faster in recoveries.
Based on these trends, it appears that crypto tends to move with greater intensity than stocks — both on the way down and on the way up.
In liquidity-driven rebounds like 2020 and 2023, it has outpaced equities. In tightening cycles like 2022, it has underperformed sharply. And at times, it can follow its own boom-bust rhythm, regardless of macro conditions.
➤ For investors, the trade-off is clear: higher upside potential, but far more volatility compared to traditional stock indices.
Risk analysis: Crypto vs. stocks in a recession
Recessions test how different asset classes behave under pressure. Here’s how crypto and stocks compare across key risk areas:
Volatility
Cryptocurrencies are far more volatile than stocks. Even in stable markets, Bitcoin can swing 5 – 10% in a day, while the S&P 500 typically moves 1 – 2%. During major economic crises, that difference can become more extreme.
Bitcoin usually moves in the same direction as equities but with amplified force — often three to five times more. This means crypto may rally harder in recoveries, but it also collapses faster in panics.
If you are not comfortable with sharp swings, this level of volatility can be difficult to manage. By contrast, a diversified stock portfolio may still see double-digit losses, but those drops tend to unfold in a more measured way.
Liquidity
Both U.S. stocks and major cryptocurrencies are liquid under normal conditions. But during panics, their liquidity behaves differently.
➤ Stocks benefit from regulated markets, market makers, trading halts, and central bank intervention. In contrast, crypto operates 24/7 across global exchanges with no circuit breakers and no lender of last resort.
If sentiment turns, liquidity can vanish quickly. We have seen exchanges pause withdrawals or face cascading liquidations when large sell-offs occur.
Stock markets also have much deeper institutional participation, especially in large-cap names. That depth helps absorb panic selling more efficiently than the thinner order books seen in crypto.
Regulation and protections
The U.S. stock market operates under strict regulatory oversight. Public companies must disclose earnings and investor protections like SIPC insurance and anti-fraud laws offer some safety in turbulent times.
During recessions, regulators may even step in with emergency measures, as seen in 2008 (for example, banning short-selling of financial stocks in 2008 or providing stimulus).
By comparison, crypto still operates within an uncertain and uneven regulatory environment. Most exchanges and token issuers operate with minimal oversight.
➤ In a market downturn, this lack of structure can increase risk — there’s no guaranteed recourse if a platform collapses or a project fails. Regulatory crackdowns themselves can also trigger sudden sell-offs. While some oversight could eventually strengthen crypto’s credibility, that safety net doesn’t exist yet.
Adoption and value anchors
Stocks are backed by real businesses with earnings, assets, and dividends. During a downturn, that underlying value can attract buyers and offer some price support.
Stocks are also widely held by pensions, mutual funds, and institutions, which makes them less prone to mass liquidation. Crypto adoption has grown, but the bulk of the investment is still mostly concentrated among retail and high-risk funds.
Crypto doesn’t generate cash flows, so its price depends on sentiment and perceived utility.
➤ In a recession, people may choose to liquidate crypto first if they need cash, while keeping long-term stock holdings. That makes crypto more vulnerable to deep drops, especially in a stressed market.
Portfolio strategies for a recession
If you are preparing for a recession — whether you favor stocks, crypto, or both — it’s wise to formulate a plan that balances risk and reward. Here are some portfolio suggestions to consider based on your diversification preference, personal risk tolerance, and time horizon:
- Diversify across asset classes: Accumulate a combination of stocks, bonds, cash, and crypto. Don’t overexpose your portfolio to one asset class or sector. Diversification can limit damage when one asset crashes (even if it does’t eliminate all losses).
- Align with your risk tolerance: You might want to avoid heavy crypto exposure if sharp drawdowns stress you out. Stick with stable assets like blue-chip stocks or bonds if you’re risk-averse. Limit crypto to a small percentage (e.g., 5–10%) if you want exposure but prefer to cushion against volatility.
- Maintain liquidity for short-term needs: Keep enough cash or liquid assets for emergencies. Do not rely on selling volatile assets like crypto or stocks during a downturn. Note that liquidity acts as recession insurance.
- Think long-term and rebalance when needed: Recessions are temporary, so try staying focused on your long-term plan. Rebalance if asset values deviate from targets. Focus on quality — for instance, strong companies in stocks and credible projects in crypto.
- Stay informed but disciplined: Follow macro news, but don’t panic or overtrade based on headlines. Emotional decisions — especially during volatility — often lead to losses. Stick to your strategy and filter out short-term noise.
Crypto or stocks: Which fits your portfolio better?
While stocks offer stability, crypto may offer long-term upside (assuming you approach it carefully). A balanced recession strategy often includes core stock exposure and, for those comfortable with some risks, a comparatively smaller crypto allocation. The trick is to find the right balance based on your strategic objectives and risk tolerance.
Recessions eventually end, and markets recover. Your aim should be staying invested, not succumbing to panic, and emerging stronger when conditions improve.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Always do your own research (DYOR).
Frequently asked questions
Is crypto riskier than stocks during a recession?
Has Bitcoin ever outperformed the stock market in a recession?
Can crypto act as a hedge in a recession?
What’s the best way to balance crypto and stocks during a recession?
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