Crypto markets have been flying this year, but a continued gloomy outlook for the world economy could clip those wings.

The International Monetary Fund (IMF) expects about a third of the global economy to fall into recession by 2023, according to a January 16 report from the World Economic Forum.

"The outlook for global growth remains bleak, and the risk of a global recession is high."

The report added that businesses face a "triple challenge" in early 2023. High prices for key inputs, tighter monetary policy and weak demand will dampen any economic recovery.

The chief economist also cited staff shortages, talent availability and major cost-cutting as factors. This all has a trickle-down effect on retail consumers at the bottom.

Why the crypto market is affected

In addition, the U.S. savings rate, which measures the amount of disposable income a person deducts to invest, has fallen to a record low of around 2.3%.

This could have a significant impact on crypto assets, which are generally considered high-risk. If there is less disposable income to spend, there will be fewer investors to invest in risky assets such as cryptocurrencies.

A recession could further affect this as higher prices squeeze more wallets and only the wealthy get involved in risky crypto investing.

With this in mind, it is unlikely that the crypto market will fully recover in 2023, and consolidation may continue until 2024.

Only when inflation is under control and the cost of living falls will the broader economy begin to recover. Only then will the retail sector have enough liquidity to take risks with crypto assets.

That said, the World Economic Forum did acknowledge the existence of cryptocurrencies in a report earlier this month.

Cryptocurrency Market Outlook

The market has been rising so far this year, but analysts are warning of a bull trap. There was a slight pullback today, with the total market capitalization down to $1.03 trillion. However, the market has surged 24% since the beginning of the year.

There is usually a Lunar New Year rally, so this rally will likely fade after the holiday. Major currencies like BTC and ETH are down a few percentage points today, and other altcoins are also pulling back.