As a decade passes by since the milestone collapse of the Lehman Brothers as a consequence of the financial crisis, experts are predicting another one. However, looking ahead, the more relevant question is whether we are ready to handle another recession.
JPMorgan Chase, the largest bank in the United States, has predicted that the U.S. economy has a greater than 50-50 odds of tipping into a recession in the next two years, according to a model tracked by them. In a global market crash, can crypto be a viable alternative to existing stores of value?
Imminent Crisis?
“The probability of a U.S. recession within one year is almost 28 percent, and rises to more than 60 percent over the next two years, researchers wrote in a note this week. Over the next three years, the odds are higher than 80 percent, according to the note,” reported Bloomberg.
JPMorgan’s model takes into account indicators ranging from consumer and business sentiment to prime-age male labor participation, compensation growth, and durables and structures as a share of the gross domestic product. The Federal Reserve Bank of New York’s tracker shows a 14.5 percent chance of a recession a year from now which is a far cry from the model published by the banking giant.
The current global expansion is likely to continue into the next year, given the large-scale fiscal deficits the US is running, China is pursuing loose fiscal and credit policies and Europe remains on a recovery path. But by 2020, the conditions will align for a financial crisis, followed by a global recession.
Stephen Stanley, the chief economist at Amherst Pierpont, is of the opinion that 2020 could be too short a period for the next US recession to occur but he too echoed JPMorgan’s opinion that while the US economy remains strong with low unemployment rate and a bull market, the risk of a recession in the years to come is too high to ignore. David Altig, Federal Reserve Bank of Atlanta research director and NABE’s survey chair, disclosed that two-thirds of the US business economists expect the market to crash by the end of 2020, mostly due to the ongoing trade issues, “Trade issues are clearly influencing panelists’ views,”.
Golden Ticket for Crypto?
The demand for crypto has increased rapidly during a period in which many economists are warning the industry of an imminent market crash and a major recession within the next two years. Financial institutions such as Fidelity, Goldman Sachs, and Citigroup have already started to brace for the worst, establishing the infrastructure to welcome the increasing number of institutional investors investing in the digital asset market.
The lack of a regulatory body has kept banks and other major financial institutions from foraging too much into the rapidly growing industry so far. But experts have suggested that as the demand for crypto from investors in the traditional finance sector has increased rapidly through the past several months, major financial institutions are accelerating their plans for establishing themselves in the field.
As Jim Hamel, portfolio manager at Artisan Global Opportunities Fund explained, “There are a number of tailwinds contributing to this trend. First, we’re seeing rapid growth in e-commerce, which requires that customers be able to make secure digital payments. The growth in cross-border transactions and the general impact of an increasingly globalized marketplace are helping accelerate this trend.”
Falling Markets
The past week has seen major stock markets around the world registering a rather worrying drop in value. As Monday closed, the German DAX, French CAC 40, and UK FTSE 100 are all trading more than four percent lower than mid-day trading Friday. The NASDAQ Composite and the S&P 500 too are down as are the Asian markets, including the Shanghai SSE Index, Nikkei 225 and the Hong Kong Stock Exchange.
The Global Economy seems to be heading to stagnation as echoed by Jamie Dimon, CEO of JPMorgan Chase. “The U.S. and the global economy continue to show strength, despite increasing economic and geopolitical uncertainties, which at some point in the future may have negative effects on the economy.”
Dimon added the during the bank’s earning press release that, “There’s always friction in the global economy, it just seems to be deteriorating a little bit. I’m just pointing it out. When you look at the whole landscape I wouldn’t ignore all that and the chance that one of those could go bad.”
Time for Crypto to Save the Day?
A recent survey conducted by Fundstrat Global Advisors at a dinner with 25 institutional investors found that 72 percent of respondents believe that a recession would drive the value of cryptocurrency to new heights. An online Twitter survey conducted by Fundstrat with around 9,500 respondents done in early October found that 59 percent were of the same opinion.
Yet, in spite of all the optimism, the crypto market cap has dropped by two-thirds since the start of the year and the market has shown little life in recent months. The valuation bubble which formed early in 2018 might not have completely subsided. So, the question of whether investors would really put their money into relatively untested cryptocurrencies provided a recession of the market does occur depends on the severity of the ensuing crash. But if the indications coming from stock markets are anything to go by, we might be staring at the answer to this question in the not-so-distant future.
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