The crypto market genocide will not diminish as token prices plummet, companies dismiss employees, and some of the industry’s most popular names collapse. The turmoil has surprised investors, wiping out more than $ 2 trillion in value in a few months and wiping out the life savings of big retailers on crypto projects that are considered secure investments. The sudden decline in
wealth has fueled fears that cryptocurrency crashes may help cause a wider recession.
The market capitalization of the crypto market of less than $ 1 trillion (less than half of Apple) is small compared to the country’s $ 21 trillion GDP or $ 43 trillion housing market. However, Goldman Sachs estimates that U.S. households own one-third of the world’s crypto market, and a Pew Research Center study shows that 16% of U.S. adults invest in cryptocurrencies. It states that it has been traded in or used. Therefore, the deep sold-out of the crypto market has some national exposure.
Then there is all the mysticism surrounding the early crypto sector. It may be one of the smaller asset classes, but in popular culture, vibrant industries such as advertising for major sports championships and stadium sponsorships are getting a lot of attention.
But economists and bankers tell CNBC they aren’t worried about the impact of crypto on the entire US economy for one important reason: crypto isn’t tied to debt.
“People don’t really use crypto as collateral for real debt. Without it, this is just a lot of wasted paper. So it’s at the bottom of the list of economic issues, “said Joshua Gans, an economist at the University of Toronto.
Guns states that this is a big part of why the crypto market is still a “side show” of the economy.
Most traditional asset classes are expected to have reasonably stable values over a period of time. For this reason, these own assets can be used as collateral for borrowing money.
“What you haven`t seen with crypto assets, simply because of their volatility, is that same process by which you`re able to use it to buy other real world assets or more traditional financial assets and borrow off that basis,” explained Gans.
“People have used cryptocurrency to borrow for other cryptocurrency, but that`s sort of contained in the crypto world.”
There are exceptions — MicroStrategy took out a $205 million bitcoin-backed loan in March with the crypto-focused bank Silvergate — but for the most part, crypto-backed loans exist within an industry-specific echo chamber.
According to a recent research note from Morgan Stanley, crypto lenders have mostly been loaning to crypto investors and companies. The spillover risks from tanking crypto prices to the broader fiat U.S. dollar banking system, therefore, “may be limited.”
For all the enthusiasm for bitcoin and other cryptocurrencies, venture capitalist and celebrity investor Kevin O`Leary points out that most digital asset holdings are not institutional.
