Crypto Regulations and the US Recession: What Investors Should Know

As the recession fears, investors are paying close attention to regulatory signals and markets. History shows that policy changes during recession can have complex effects, reducing or exacerbating the impact of contracted economies. This article explores how crypto regulations, monetary policy, and broader fiscal responses will affect the US recession and what these changes mean for digital assets.

Historical Regulation Changes During the US Recession

According to the National Bureau of Economic Research (NBER), there have been around 15 recessions in the United States since the stock market crashed in the 1920s.

These recessions were the result of or resulted in significant policy changes. Here we briefly review some of these recession details and give some context as to how regulations affect crypto in a US recession.

Great Fear Prepression

The Great Repression was a global economic crisis that began with the 1929 stock market crash in the United States in 1929. That was the cause:

• Too much isolation and stock market exposure
• High leverage
• Insufficient regulations
• Wealth inequality and overproduction
• A wide range of banks are implemented

The stock market crash in 1929 exposed flaws in the US financial system. This, coupled with poor policy response, helped to cause a great pression.

The Fallout of Great Depression was the catalyst for the New Deal, a series of social welfare programs that led to the modern era of US social welfare policy. These programs are intended to create relief, recovery and reform.

Some of these New Deal programs launched by President Franklin D. Roosevelt included the Public Works Agency (PWA), FDIC, CCC, and Social Security (many of which are still present).

OPEC embargo

The US oil embargo, particularly the OPEC embargo in 1973, was a key factor for bulls in the 1970s. In response to support Israel during the Yom Kipper war, OPEC imposed an oil embargo on the US and other allies.

During this period, crude oil prices rose sharply, leading to high inflation, unemployment and stagnation of economic growth. The embargo caused supply shocks, increasing energy and production costs, affecting various sectors of the economy.

1973 is a classic case of a stag. Recessions are usually characterized by deflation or disinflation. However, the OPEC oil embargo is a perfect example of how the recession is not necessarily tied to a particular scenario.

COVID-19 (COVID-19)

In 2020, governments around the world implemented massive lockdowns, quarantines and travel bans in response to Covid-19 diseases.

This has caused significant supply chain shocks in many industries. On paper, the recession was short-lived (two months). However, the lockdown caused a sudden and historic economic downturn in early 2020.

This created an unprecedented supply and demand shock. The supply chain has been destroyed across sectors such as manufacturing, healthcare and consumer goods.

At the same time, uncertainty, restrictions and unemployment caused consumer demand to drop sharply. In response, the government (including the US) has enacted large-scale fiscal and financial interventions. In the US, this is:

• Stimulus checks, unemployment benefits, pay protection program (PPP)
• Interest rates will be reduced to almost zero
• Quantitative relaxation
• Emergency lending facilities

Regulation changes possible during the next recession

There are three specific policy and regulatory changes that are most relevant to crypto during recessions. Cryptocurrency, customs policies, and FED policies. Below is how this will affect the crypto market.

Cryptocurrency

Many possible regulatory and policy changes can be derived from historical contexts. However, the first possible changes could be inspired by recent events. The current Trump administration is the first custody administration in US history that has so far been characterized by several important events.

• It has suspended most Biden-era crypto regulations and pending lawsuits.
• We expanded the broker definition to disable IRS rules that include distributed exchange (DEX).
• The SEC took a more collaborative and balanced approach and rejected many well-known cases.
• Stubcoin restrictions that may be in the future.

Bitcoin Prices and Important Events: TradingView

Customs policy

Customs policies are another aspect of how regulations affect the crypto market during the US recession. In April 2025, mere mention of Trump’s tariffs is enough to cause uncertainty and send the market into a fuss.

Though not directly linked to cryptocurrency, the announcement of tariffs has historically had a stifling effect on cryptocurrency prices. Conversely, rollbacks or suspensions of tariffs coincided with occasional short crypto rallies.

Bitcoin price response to customs duties: TradingView

Actual impacts depend heavily on timing, geopolitical context, and how traders interpret macroeconomic signals. As in this guide mentioned earlier, Tariffs exacerbated the effects of the recession during the Great Repression.

Changes to the Fed policy

If you’ve heard an announcement from the Federal Reserve, you know it has a double mission: maintain full employment and stable prices. The Federal Reserve is the US Central Bank. It manages money supply and interest rates as part of its monetary policy toolkit.

interest rate

When the Fed adjusts interest rates, it usually refers to the federal fund rate, the rate at which banks lend each other overnight. This rate affects a variety of borrowing costs, including mortgage fees, credit card fees, and business loan fees. Generally speaking, this is how fees apply to the market.

Fed fund rate and US recession (62 chart): macrotrends.net

This is most relevant to crypto in terms of sudden drops in interest rates and a sudden rise in liquidity during Covid year (2020-2021). This has led to a historic bull run in the crypto market that has not yet been replicated.

In summary, if a US recession occurs, the Fed’s policy on interest rates could have a major impact on crypto. If the Fed raises interest rates to combat inflation, this could curb crypto prices as capital becomes more expensive.

Other possible policies

Another possible outcome that may result from or be forwarded by a recession is government intervention, particularly stimulating payments or relief. Although it is generally unpopular, there is a precedent that governments may try to support the economy in the event of a US recession.

The latest example was during COVID lockdown, in which the government sent stimulus checks and exempt those forced to stop work. Furthermore, during the GFC, the government bailed out banks to prevent the collapse of the US banking system.

Preparing for cryptographic regulations changes

Preparing for unknown regulations changes is difficult. Ultimately, it’s difficult to predict exactly what these changes will be. However, it can be prepared to some extent by minimizing reliance on a single jurisdiction, custodian, or protocol.

• Diversify beyond centralized and distributed platforms or protocols with different legal risk profiles. The Trump administration has advantages in code, but the US government is filled with different factions and has a separation of power. Cryptocurrencies can move to unfavourable areas. No positive change is guaranteed.
• During the recession, regulators can tighten their control in response to market volatility, fraud, or systematic risk. Therefore, it is important to operate under the assumption that weakening of the market will increase execution risk. Keep a record of all transactions and wallet addresses if tax or reporting rules are extended along the way.
• While access is fluid, consider onboarding to multiple fiat-on and off-ramps now (e.g., Coinbase, Kraken, Bank-Frendly Platforms).
• If possible, you should use independent things to reduce your dependence on independent platforms.

How Crypto investors prepare for a recession

When it comes to preparing for a recession, crypto investors should remember that digital assets are fundamentally silent from businesses and governments, but are leading to the global liquidity cycle.

Furthermore, Crypto is still a relatively young asset class. Therefore, its full range of responses to macroeconomic stress and policy changes is not yet fully understood.

Although past behavior suggests a strong correlation with liquidity conditions, it is important to acknowledge that the crypto market does not always follow historical patterns. That being said, here is a way you can prepare for a US recession.

Reduce exposure to the lending market

Cryptocurrency markets can pose risk to both borrowers and lenders during the US recession. For borrowers, asset prices can drop sharply, leading to rapid liquidation and significant losses (especially in volatile environments where interest rates on crypto-assisted loans rise).

For lenders, decentralized platforms rely on automatic liquidation to protect against defaults, but these systems rely on sufficient liquidity and Oracles that function. If liquidity dries out or demand for liquidated assets decreases, the protocol may experience slippage and liquidation failures, leaving lenders with bad debts.

Spin to a safe shelter

Another crypto strategy It can be used in recession. A safe haven is an asset that retains or increases the value of a recession.

Historically, these have been US dollars (USD), US sovereign debts and gold. When risk appetite is waning, investors tend to readjust their portfolios to these assets to protect their purchasing power.

As for Crypto, this could be “digital dollars” and “digital gold” such as Stablecoin (USDC, USDT, etc.) on the USD page or Bitcoin (i.e. digital gold).

Additionally, protocol-level staking functions as the crypto equivalent of sovereign debt. In the digital economy, blockchain protocols behave in the same way as sovereign nations. This means that native assets act as financial instruments. As usage increases, network effects will be enhanced and native tokens will retain and improve stakes.

In this sense, staking provides predictable yields and capital retention, particularly during periods of economic contraction or volatility in traditional and decentralized finance. Just as the way the US Treasury is considered hedge in times of uncertainty, immersing the native assets of well-utilized protocols could provide a form of crypto portfolio stability and passive income.

Cryptocurrency, policy, recession risk: tie it all together

New regulations could be positive or negative for crypto ecosystems. Ultimately, this will depend on what form the regulations appear. If the US falls into a recession, this could drive regulatory changes in response to the broader macroeconomic environment. Recession is not synonymous with price (deflation, disinflation, stagflation). Ultimately, the reason for the recession should be informed that investors are responding.

A recession can be further exacerbated by its cause (policy) or policy response to the recession. Some of the policies that could affect cryptographically are the new regulations for customs, FOD policies and courses. That said, investors can oppose the US recession by turning into safe assets and reducing exposure to the lending market. As always, do your own research before investing.