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What Morgan Stanley Said About US Economy: How It Will Impact Bitcoin

2 mins
Updated by Ryan James
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In Brief

  • The US economy is likely to enter a recession in the next 18 months, according to Morgan Stanley's chief US economist, Ellen Zentner.
  • Zentner asserts a recession is almost guaranteed because of all the pent-up effects of the last 18 months of interest rate increases.
  • Bitcoin's $57,000 surge looks likely to be more directly influenced by institutional activity instead of the state of the US economy.
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Morgan Stanley’s Ellen Zentner predicts a hard landing for the US economy. Her statements come amid Bitcoin’s recent tear and market expectations that the US Federal Reserve will cut interest rates.

Ellen Zentner, the chief US economist at investment bank Morgan Stanley, predicts that a US recession at some point is unavoidable, though it may not happen this year.

Why Morgan Stanley Predicts Recession

Zentner said the effects of recent monetary policy decisions may only be felt in the next 18 months. The high-interest rates, which the Fed gradually increased over 18 months, have affected the lending market, which could see the country hit a recession soon.

“We will have a hard landing at some point. I guarantee you that. here are these cumulative impacts that build over time, and we are in the camp that we haven’t seen all of the tightening impacts of monetary policy,” Zentner said.

Zentner says that the impacts of the high-interest rates have manifested in certain parts of the economy. Corporate defaults hit a post-pandemic high last year, while data from the Federal Reserve suggests that bank lending has fallen. And given the previous month’s 3.9% growth in core inflation, excluding food and energy, Zentner added that a rate cut relief may only occur after mid-year.

Read more: How to Protect Yourself From Inflation Using Cryptocurrency

morgan stanley us inflation
US Core Inflation Year-on-Year | Source: TradingEconomics

The US Federal Reserve has elevated interest rates at its last three meetings. The central bank will meet on March 12 to decide whether to continue this policy or start rate cuts.

Analysts have pared back their expectations of a rate cut in March. However, they predict a 39% chance of a 100 basis-point cut by the end of the year.

Why Bitcoin Seems Unaffected by US Economy

In the meantime, Bitcoin surged 10% intraday to $57,000 yesterday. It is unclear how long Bitcoin can hold this price since traders are in price discovery mode and market activity is muted.

Almost all Bitcoin holders are now in profit, with new investors uncertain about what will happen to the money they invest in the asset today. Furthermore, the recent surge appears driven by institutional trading strategies rather than retail traders. On-chain analysis reveals that the average transaction size in the past week was $180,267.82.

Galaxy Digital’s Head of Research, Alex Thorn, said that only 5% of supply had moved when prices exceeded $54,500. Furthermore, the asset has only traded higher on 1.4% of its lifetime. Therefore, the price of Bitcoin in the near future could largely depend on institutional activity.

Read more: How To Buy Bitcoin (BTC) and Everything You Need To Know

bitcoin morgan stanley recession
BTC Supply by Price Last Moved OnChain | Source: Galaxy Research

Data from K33 revealed that Bitcoin’s surge to $54,000 on Tuesday was largely driven by a short squeeze that spiked funding rates to an 864-day high. The asset surged to $57,000 after liquidations of Bitcoin margin trading positions. BeInCrypto reached out to Zentner on LinkedIn for a perspective on crypto in the near term but had yet to hear back at press time.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...