UBS, the global investment bank, has recently raised the US recession odds to 60%. In fact, the recession in the US is causing great worry among various sectors. The recession was at 40% in June. Therefore, such a big jump will indeed affect the economy badly. Pierre Lafourcade, an economist is of the opinion that according to the latest data, there is a 94% chance that the economy will contract. However, according to Pierre, this contraction will not likely become a “full-blown recession.”
Exceedingly low levels of non-performing loans, or defaults exceeding 90 days from credit borrowers partially explains the difference. In fact, Jane Fraser, the Citigroup chief executive, states that there is a good feeling about credit quality and liquidity in his institution. However, even if the recession is avoided, companies will experience low earnings.
This is due to the fact that increasing inflation will limit consumption. Also, the increase in the interest rates by the Central Bank will add to the trouble. This will also affect the stock market and especially the crypto market. In fact, the crypto market has no set parameter to guide token prices, unlike the stock market.
If you wish to know more about the view of UBS, the stock market and the crypto market then this article is the perfect stop for you.
Valuation and Stock Markets
In the valuation of equities, investors have different expectations, timeframes and inputs for a stock. Obviously, there are indicators, recommendations from analysts and consolidated models. But that never guarantees that the equity price will follow any rationale.
In fact, traders should not confuse valuation with volatility. It might be that a company has a steady cash flow. But during bull markets, this might become the greatest liability. In fact, the collapse of a financial institution might drag other counterparts with it. Therefore, stock markets are never immune to the broader economy.
What’s Up for The Cryptocurrencies?
Both Ether and Bitcoin have extremely limited production schedules. Therefore, even if the hash rate and validators drop by 90%, this will remain intact. They will keep on working as independent digital asset transmission systems as earlier. It is true that the kind of recession stated by UBS will definitely affect the prices of crypto coin heavily.
However, it is hardly possible that due to rising interest rates or credit defaults and inflation, the networks will turn useless. However, the same does not hold true for all top 20 companies by revenue including UnitedHealth Group, Ford and Walmart.
Crypto coins have a decentralised aspect. This aspect work as a shield to protect the investors from even the worst-case scenarios. On the contrary, failing companies are not proper stores of value during a recession. At the same time, the initial shock of a global recession could pave the way for alternative hard assets, including crypto.
The UBS has raised the US recession odds to 60%. Infact, if a global recession occurs, then that will be the first major economic crisis faced by cryptocurrencies. We cannot say perfectly if the crypto market will be able to endure a recession in the long run.
However, till now, it has endured many major market participant failures. Therfore, it remains to be seen if the crypto market can withstand a global recession.