What would happen to Bitcoin, Ethereum, and XRP if stock and traditional markets collapsed?
Finance expert, Michael J. Burry, rose to renown following his precise prediction of the 2008 financial catastrophe. During the 2008 housing market crash, his investment fund generated billions in profits. During the second quarter of 2022, Burry liquidated nearly all of his investment portfolio. Due of his notoriety, he was portrayed in the film “The Big Short.”
It might be a good moment to invest in digital assets since no one can tell when traditional markets will recover before entering another slump. Experienced investors (including Burry) also miss incredible market rallies; below are examples of some of their misses. In May 2017, Burry predicted World War 3 and a financial meltdown worldwide.
In contrast, the S&P 500 rose 20% nine months later. By December 2021, the index rose 100 percent higher than Burry’s predicted short entry price. Burry opened a short position in Tesla stock in December 2020 and defended his decision by stating that the stock’s price was absurd. However, the price of Tesla’s stock increased by an additional 47 percent 35 days after Burry’s comments. Ten months later, Tesla’s stock price climbed another 105 percent.
A significant recession might happen, but the exact period is unknown
The US Dollar index has been bullish relative to other leading global currencies. It reached its peak in twenty years. It proves that investors are selling their stocks, leaving corporate debt and foreign currencies to seek shelter in cash positions. Moreover, the difference between the US Treasury’s 2-year and 10-year notes widened, reaching a new high of -0.57 percent on Thursday.
Usually, analysts interpret an inverted yield curve as the peak sign of a recession. An inverted yield curve arises when long-term government bonds have lower yields than short-term government bonds. In addition to these worries, the US Fed disclosed $2.36 trillion in overnight reverse repurchase agreements, its highest ever.
When there is a reverse repurchase, market participants lend cash to the US Fed in exchange for agency-backed securities and US treasuries. The excess cash on investors’ balance sheets shows little trust in counterparty credit risk, indicating bearishness. After three critical macroeconomic indicators reached levels not seen in more than 20 years, there is a need to answer two crucial questions.
What is the relationship between Bitcoin (BTC), Ethereum (ETH), and conventional markets? Second, if the S&P 500 decreases by 20 percent and the housing market crashes, what effect would it have on investors? Even when residents can use cryptos to pay their bills, healthcare services, energy prices, and food still depend heavily on the US Dollar.
Imports, exports, actual trading, and various other international commodity transactions are frequently priced in USD. Hence, if someone uses Bitcoin or altcoins to pay for their expenses, it is likely that crypto holders would still convert their cryptos to fiat at some point.
US Dollar interest rates and economies
The most important lesson from an ineffective circular trade exclusively with digital currencies is that nearly everyone still depends on the USD’s borrowing cost and strength. Every market is affected, with the exception of those in caves, communist islands, or self-sufficient regions. It is hard to foresee the effect of another 20 percent crash in stock markets or a crash in the housing market on Bitcoin and Ether.
Some investors would attempt to lessen their exposure to the crypto winter and move their funds into secure cash positions. However, there would also be another group of investors seeking non-forfeitable assets or insurance against inflation.
Hence, Michael J. Burry’s story is essential now, with nearly all pundits and market analysts predicting a crash in housing prices or a market crash in the near term. Bitcoin and Ether are approaching their first global economic recession. But based on the March 2020 experience when the COVID-19 crisis triggered panic selling, those that held for the long-term enjoyed the rewards.
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