Although there is no ex-type sequence yet available, the species is relatively morphologically distinct and there is no known evidence of cryptic taxa within the established species concept.

Hygrocybe phaeococcinea belongs to the European waxcap assemblage whose members are globally impacted by the declining area/quality of their grassland habitat. This assemblage is declining across Europe due to changes in land use (agricultural intensification and decline of traditional farming practices) and increasing use of fertilisers and pesticides. It is nationally assessed as Least Concern in Fennoscandia, but extremely rare, declining and nationally Red Listed in continental Europe. The species has also been recorded a few times in North America. Declines in area and quality of available habitat have approached 30% over the last 50 years (three generations); the decline in population size over this time could be higher, but are suspected here to approximately match the habitat declines. This decline in habitat is expected to continue into the future. Therefore, H. phaeococcinea is assessed as Near Threatened A2ce+3ce+4ce.

Hygrocybe phaeococcinea is a relatively distinctive species that is widespread in Europe (Boertmann 2010, GBIF 2024). Although there is no ex-type sequence yet available, the species is relatively morphologically distinct and there is no known evidence of cryptic taxa within the established species concept. It is regarded as "probably overlooked" in Europe, and it could be quite widespread. A few recent ITS-sequences from Canada and USA (and reports in iNaturalist 2024) confirm the species as also being present in North America.

The population size of this species probably exceeds 20,000 mature individuals. The overall European population is probably decreasing, caused by a cessation of small scale farming and traditional methods of grassland management, and use of fertilisers and pesticides. The species has its stronghold in northern Europe (Finland, Norway and Sweden) (Hyvärinen et al. 2019, SLU Artdatbanken 2020, Artsdatabanken 2021). It is uncommon to extremely rare in the rest of Europe (see e.g. Arnolds and Veerkamp 2008, Dämmrich et al. 2016, Moseland et al. 2023). According to the Food and Agriculture Organization of the United Nations (FAO), the area of grasslands in the EU declined by 12.8% over 13 years (1990-2003); only a few Member States managed to avoid this trend (Food and Agricultural Organisation of the United Nations 2006). Based on this, the overall decline in Europe may be as high as 50% over three generations (50 years; Dahlberg and Mueller 2011) in Europe, however taking into account uncertainties and its distribution in North America, the global population decline is suspected to approach 30% over three generations, although further confirmation would be useful.

Hygrocybe phaeococcinea is an indicator of mycologically rich but nutrient-poor, semi-natural grassland (a member of the waxcap grassland assemblage). This habitat, which may be of low conservation concern for its plant and animal diversity, is rapidly disappearing worldwide due to changes in land use (intensification of farming practice, eutrophication and increased use of fertilisers and pesticides). This species is also recorded from peaty soil (Arnolds 1990), but is nonetheless a characteristic "waxcap grassland" species. Waxcaps are currently regarded as forming a biotrophic relationship with plants but the details remain unclear. Fruiting populations of waxcaps are nitrogen sensitive and dependent on a regime of grazing or mowing without applications of fertiliser or pesticide. The waxcap grassland assemblage is characterised by a large diversity of other fungal genera (including Entoloma, clavarioid taxa and geoglossoid taxa) that have similar nutrient and management requirements. Addition of fertilisers or cessation of grazing/mowing management is rapidly detrimental to fruiting community diversity.

As a species dependent on semi-natural grasslands, Hygrocybe phaecoccinea is threatened by habitat loss and degradation due to a decrease in small scale, low intensity farming. The main reasons for declines involve land that is no longer farmed or, if still in the farming system, is subjected to ploughing, reseeding, fertiliser application (mainly of phosphorus and nitrogen), pesticides, reduced grazing intensity and eutrophication. According to NATURA 2000 reports (Calaciura and Spinelli 2008), grassland habitats are steadily decreasing, mainly due to abandonment or change in land use. According to the Food and Agriculture Organization of the United Nations (FAO), the area of grasslands in the EU declined by 12.8% from 1990 to 2003; only a few Member States managed to avoid this trend (Food and Agricultural Organisation of the United Nations 2006).

Pressure caused by land use changes on grassland habitats is steadily increasing. Some 60% of newly afforested areas in the EU formerly were used as permanent/seasonal grazing land or hay-production in natural meadows. More than 75% of the grassland habitats in the EU are in an unfavourable conservation status, according to draft data provided by Member States under Article 17 of the Habitats Directive.

According to the European Environment Agency (2015), natural and semi-natural grasslands have undergone a major decline in recent decades. Grasslands have one of the lowest proportions (11%) of favourable condition assessments and one of the highest proportions of decreasing assessments of all the terrestrial ecosystems considered. About 49 % of EU assessments for the 45 grassland habitat types of Community interest are "unfavourable-bad". Grassland butterflies, for example, are declining severely and there is no sign of level-ling off (European Environment Agency 2024). Accordingly, Janssen et al. (2016) reported that 53 % of the grassland habitats in Europe are threatened to some degree (the second most threatened habitat type after “mires and bogs”).

No use or trade is known.

In northern Europe (Finland, Norway and Sweden) it is nationally Red Listed as Least Concern (LC) (Hyvärinen et al. 2019, SLU Artdatbanken 2020, Artsdatabanken 2021). Elsewhere, it is nationally Red Listed as Near Threatened in Denmark and Endangered in the Netherlands; and it is Vulnerable in Quebec, Canada (Arnolds and Veerkamp 2008, Canadian Endangered Species Conservation Council 2022, Moseland et al. 2023).

Site protection and management of habitats are both very important conservation actions for this species. Grazing, at least before the onset of the fruiting season, is of fundamental importance. On sites where cattle would cause soil erosion (e.g. sloping ground, thin soils), sheep are the preferred grazing animal. Mowing, with collection of ‘arisings’, can substitute for grazing. Further ecological research is needed to clarify resource relations of waxcaps, their population biology and full distribution range.