Cryptoeconomy Winter? Fed Warns of Market ‘Shocks,’ De-Risking
November 28, 2018 by William Peaster
In its latest Financial Stability Report, the Federal Reserve outlined what it saw as serious current threats to the U.S. economy’s stability. The future is ever uncertain, but the report is worth crypto traders’ consideration: any shocks in the U.S. financial system would reverberate not only throughout the global economy but also in the cryptoverse.
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The Enemies at the Gates
On November 28th, the Federal Reserve published the latest edition of its Financial Stability Report. It a was more ominous read than recent versions past.
Therein, the Fed, which comprises the central bank of the United States, highlighted rising trade wars, intensifying geopolitical anxieties on the international stage, and growing corporate debt saturation as collectively bearing the potential to catalyze new market “shocks” that could cause historically “elevated” asset prices to plunge in the U.S.
There are no guarantees where things go from here, but the Fed’s language in the report undoubtedly anticipates the possibility of sharp economic recession being nigh.
The crux of the report pertains to the high-risk cryptoeconomy insofar as the report’s authors suggested such economic shocks could lead to an overall de-risking investment environment for the foreseeable future.
“An escalation in trade tensions, geopolitical uncertainty, or other adverse shocks could lead to a decline in investor appetite for risks in general,” the Fed explained.
“The resulting drop in asset prices might be particularly large, given that valuations appear elevated relative to historical levels.”
Economic Recession, Cryptoeconomy Winter
November 2018 was a rough month for the cryptoeconomy and its constituent assets, but it was also a rough month for many major tech stocks and U.S. stock indices.
The Dow, S&P 500 and Nasdaq have given up their gains on the year https://t.co/Yr4KEOlgSZ pic.twitter.com/RiJ0sE2ml0
— CNN (@CNN) November 20, 2018
It is debatable if an economic recession is, in fact, forming, but if one does, we’ll look back on these days as the ones wherein warning signals were flashing.
Markets grow, and they retract, and they repeat that cycle. If a recession does happen, it stands to reason that the cryptoeconomy would retract in kind from de-risking — perhaps to rise all the stronger after such a downturn, but likely not after a few bearish years.
Bitcoin has seen a multi-year bear market before, so weathering one now wouldn’t be a new experience for the genesis cryptocurrency.
Rather, the question at hand would be how long a possible de-risking environment would reign over investment circles, including cryptocurrency investment circles.
In the interim, things may go lower yet. Only time will tell for now.
What’s your take? Is a prolonged cryptoeconomy winter upon us? Or is the ongoing cryptoeconomy winter just a regular bear market? Let us know in the comments section below.
Images via Pixabay
