Last week, we covered recession odds based on Trump admin policies, tariff focus, and DOGE revelations. Since then, Polymarket odds for the US recession moved slightly up, from 39 to 40% for recession to materialize.
In addition to uncertainty from trade wars, Elon Musk’s Department of Government Efficiency (DOGE) compounds the recession risk by, ironically, unraveling fraud and waste. If millions of government workers and hundreds of "NGOs” owe their jobs to social engineering projects, which seems to be the case, what happens if they decide to liquidate assets as a preemptive measure?
This time around, fear comes from multiple angles, and it may even be directed in such a way.
There is also speculation that USG itself could benefit from recession, as $9.2 trillion worth of US debt matures during 2025. These drivers are likely to burst asset bubbles, but which assets should be considered at risk?
1. Bitcoin and Bitcoin Mining Companies
Over a month, Bitcoin is down 17.44%, presently priced at $81k per BTC. The fact that this price slump happened prior to the Executive Order to create the U.S. Bitcoin Strategic Reserve on March 6th indicates that euphoric Bitcoin sentiment had already been priced in.
This bullish process started unrolling in early November when Donald J. Trump was declared the winner of the residential elections. Likewise, CoinShares Bitcoin Miners ETF (WGMI) is down 33.84% year-to-date. If recession news hits officially, it is likely this will propagate further selloffs.
However, should Bitcoin be understood as a risk-on asset? Previously, in September 2024, BlackRock (NYSE:BLK) head of digital assets Robbie Mitchnick described Bitcoin as risky but not risk-on.
“When we think about Bitcoin, we think about it primarily as an emerging global monetary alternative, a scarce, global, decentralized, non-sovereign asset. And it’s an asset that has no country-specific risk, that has no counterparty risk.”
Owing to these fundamentals, Bitcoin has been powering through waves of major price correction, with this being the 11th one. In the scenario that the Trump admin needs recession, manifesting in lower treasury rates to refinance maturing debt, Bitcoin price could recover sooner than later.
Namely, if lower treasury rates weaken the USD, yields for dollar-denominated assets would be reduced. In turn, capital would seek alternative haven, which perfectly fits Bitcoin’s function as a hedge against dollar depreciation that is country-agnostic.
In short, Bitcoin holders may see further depreciation in the short run, alongside mining equities, but this “bubble” is likely to inflate again as recession fears fizzle out and are replaced with loose monetary policy.
2. Quantum Computing Exposure
Quantum computing stocks are far more speculative than Bitcoin. While promising and exciting to think about, quantum computing is still an early-stage technology. Qubit stability, error correction and scalability are even greater hard problems than confabulation in AI models.
Likewise, profitability in this sector is a rarity, unless the company has it as a minor division, such as Microsoft (NASDAQ:MSFT). As covered previously, quantum computing stocks have high valuations relative to their earnings, making them a speculative investment susceptible to volatility.
Year-to-date, Defiance Quantum ETF (QTUM) is down 9.3%, but this masks the picture as the ETF contains a broad range of profitable semiconductor companies. As direct exposure, quantum computing should be considered a loser in a recessionary environment.
However, investors looking for long-play exposure should then consider seizing such discounts as a welcome opportunity.
3. Will Warren Buffett Be Proven Correct Again?
In November 2024, Berkshire Hathaway (NYSE:BRKa) sold 67% of its stake in Apple (NASDAQ:AAPL). This move occurred near the peak of AAPL’s stock price in late December. Year-to-date, AAPL shares are down 10%. Meanwhile, Buffett’s Berkshire Hathaway has amassed record cash reserves of $325 billion.
This substantial cash reserve is the proverbial “dry powder” in the investing world, suggesting that Buffett is positioning himself to seize recessionary opportunities.
Given Buffett’s investing strategy that leverages market downturns to acquire assets at discounted prices, retail investors should follow along. Namely, they should consider divesting a portion of SPY stocks and diversifying into recession-resistant stocks such as utilities and consumer staples.
Do you think a recession is necessary to refinance the massive national debt? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.