Bloodbath In Crypto Tokens – Is The Economy Headed For Another Recession?

News | June 28, 2022 By:

The cryptocurrency market even though is still in its infancy, has attracted a big number of investors. It should be stated that, since May 2022 the crypto market continues to crash. Analysts and experts frequently compare this crash to the 2000s recession known as the dot-com bubble. However, there are some differences between these two downturns. Many Wall Street veterans are haunted by the dot-com catastrophe, and this year’s stock and crypto market fall is giving them a considerable déjà vu.

Since the beginning of the year, the S&P 500 has dropped by 19%, and the tech-heavy Nasdaq has done even worse, down by almost 28%. The stock market might still be in the middle of a fall based on previous patterns. On average, the Nasdaq-100 dropped 78% from March 2000 to October 2002 as once-popular technology companies went out of business. 

In the case of the 2000s recession, it should be stated that only US equities crashed, while bonds were wonderful and rates were outstanding, as well as housing was inexpensive. Comparatively speaking, 2000 “was heaven”, according to experts. The current situation in financial markets, including crypto, stock, forex, and commodity markets can have a dramatic effect on the global economy and the way it develops. Nowadays, the predictions aren’t quite optimistic. 

Macroeconomic Factors Leading To A Deeper Downturn

When it comes to the financial crises, it should be stated that mainly they are caused by the influence of macroeconomic factors. Since the beginning of May, when the stock and the crypto markets started to crash, there were numerous reasons which led the financial markets to struggle. 

According to the US Bureau of Labor Statistics, U.S. inflation is at its highest level in 40 years. It was 8.3 percent higher in April than it was the previous year, according to the Consumer Price Index, which gauges the cost of goods and services. With interest rates on the rise and a smaller balance sheet on the horizon, the Federal Reserve is attempting to rein in inflation. These steps are vital, but they also cause concern on Wall Street. The way inflation rate increases in the USA and around the globe, as well as the growing interest rates, had a dramatic effect on all the financial markets. Because of the current situation, investors started to use automated services in order to minimize losses. One of these services is Bitindex Prime, which allows crypto investors to hedge against inflation and get the most out of their trading process. At the moment of writing this the most popular cryptocurrency – Bitcoin is going down significantly. Nowadays it is estimated at $20 000, which is one of the lowest prices during the past 1 year. 

Investors are also concerned about a number of other issues. Inflation, supply chain concerns, and swings in oil prices are all made worse by Russia’s continuing conflict in Ukraine. This had an effect on the stock process, as well, which started to tremble. At the beginning of the war the cryptos started to increase in value, however, in a very short period of time, they depreciated. This led to the crypto market crash and more specifically, to the Luna coin’s loss of value. There are also concerns about the effect of the Covid outbreaks in China, which have slowed the development in the country.

Moreover, valuations and stock prices in the technology sector might be severely affected if interest rates rise. For high-growth companies, future earnings are crucial, and higher interest rates eat into those gains.

Tech Stocks And Crypto: What Does The Future Hold

Tech stocks, nowadays, similar to other stocks are struggling as well. Nevertheless, the IT sector has been particularly heavily struck. At-home workout firm Peloton is an example of a company that has struggled financially. There have been recent layoffs at both Robinhood (a stock trading platform) and Netflix (a streaming firm). These two were hit hard in April when Netflix disclosed that it had lost customers in Q1. Considering the current situation around the world, no one knows how long the process of recession will last. In the meantime, numerous tech companies are losing money and are at the risk of going bankrupt. 

Uber and Facebook’s parent company Meta are slashing expenses and halting recruiting. There has been a 20 percent drop in the stock prices of Amazon, Alphabet, and Meta, as well.

The current situation has shown that the cryptocurrency market is not as immune to market fluctuations as some investors would like to think. Even though the asset class is essentially unrelated to equities, it is nonetheless connected to investors confidence. Because of these sentiments, which are reflected in the index of greed and fear, today investors are afraid of making investments, because of the fear of losing money. As financial markets, including stock and crypto markets, are volatile, no one knows when the bearish market will turns bullis. However, it should be stated that bearish markets don’t last for a long time.