Monday, November 28, 2022

The Crypto market fall won’t damage the economy

In the real Crypto, a market fall won’t damage the economy, Investors are scared of the chaos, which has wiped out $2 trillion in value in a few months and traders’ life savings that they put in safe crypto businesses.

The sudden drop in wealth caused by the crypto market fall down has made people worry about a recession.

The crypto sector is small relative to the country’s $21 trillion GDP or $43 trillion property market that’s why The Crypto market fall won’t damage the economy. Goldman Sachs thinks that U.S. households control one-third of the global crypto market, and a Pew Research Center survey found that 16% of Americans had used a cryptocurrency. The selloff on the crypto market has a national effect.

The crypto mystique. It’s appealing because of ads for big sports tournaments and stadium sponsorships. Economists and bankers aren’t upset about the US economy because crypto isn’t linked to debt.

“Crypto is not collateral in the real world.” An economist in Toronto said, “This isn’t high on the economy’s list”. Gans says that’s why crypto is just a “sideshow.”

Problem-free, debt-free

Bitcoin and debt matter. The value of traditional asset classes should stay the same. You can use these things to get a loan. Gans also said that crypto-assets don’t work the same way as real-world or traditional financial assets because they change all the time. It’s rare to borrow money to buy cryptocurrency.

In March, MicroStrategy got a $205 million loan from the crypto-focused bank Silvergate. Bitcoin is also used to back the loan. Kevin O’Leary says that even though bitcoin is popular, few institutions own it. Gans doesn’t think that the sell-off of cryptocurrencies is affecting banks.

“Banks and other financial institutions have shown interest in crypto as an asset they might want their customers to invest in, but there isn’t that much investment,” Gans said, emphasizing that banks have their own rules and need to make sure things are good investments.

He said, “We haven’t seen the same kind of weakness as before.”

Limited access

CNBC says that small investors in the U.S. are not at risk. The $150 trillion net worth of U.S. families make the crypto market losses seem small.

Goldman Sachs says that crypto-assets make up 0.3% of the wealth of U.S. households, while stocks and bonds make up 33%. Recent price cuts will “moderately” affect how much people buy.

O’Leary, who has 20% of his money in crypto, says that everyone is losing money right now.

Both Bitcoin and Ethereum have no central authority. He said it wasn’t just Americans. A 20% drop will not affect Bitcoin’s popularity.

“$880 billion before the correction is a drop in the bucket,” said O’Leary.

BlackRock is in charge of managing $10 trillion, but there are four tech companies worth more than $5 trillion. Bitcoin is popular, therefore 20% wouldn’t matter.

Analysts on Wall Street say that crypto firms that fail are good for the industry as a whole because they show problems with business models. Alkesh Shah, global crypto and digital asset strategist at Bank of America, said that TerraUSD and Luna’s drop is probably good for the market as a whole.

Shah said that the fact that bitcoin is weak shows a correction in risky assets. Due to inflation and Fed rate hikes, crypto prices are going down with tech stocks. Rate increases and the possibility of a recession had an effect on risk assets, especially software and crypto/digital assets. My strategy colleagues think that $3 trillion will leave global markets as central banks tighten.

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