{"id":8470,"date":"2020-03-20T01:59:51","date_gmt":"2020-03-19T23:59:51","guid":{"rendered":"https:\/\/forklog.media\/?p=8470"},"modified":"2020-03-20T04:30:34","modified_gmt":"2020-03-20T02:30:34","slug":"global-recession-what-are-risks-for-bitcoin-and-miners","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/global-recession-what-are-risks-for-bitcoin-and-miners\/","title":{"rendered":"Global Recession: What Are Risks For Bitcoin And Miners"},"content":{"rendered":"

The last few weeks have been hard for the world economy and logistics. Logistics and supply chains are disrupted, some states close their borders and restrict public events. This doesn\u2019t make investors happy, lowering business activity and total demand.<\/p>\n

<\/p>\n

In this piece, we figure out if the global crisis is already here or is yet to come and explain its effects on cryptocurrencies and miners.<\/p>\n

Fed\u2019s Drastic Measures, Just Like In 2008<\/h2>\n

Amidst the growing uncertainty and fears of further spread of the coronavirus, the Federal Reserve suddenly cut<\/a> interest rates by 1% down to the 0\u20130.25% range. To prevent recession and reanimate business activities the central bank decided to buy $700 billion in government and mortgage-related bonds<\/p>\n

Expansionary monetary policy and quantitative easing<\/a> (QE) seem like emergency measures to inject liquidity into the economy.<\/p>\n

This resembles the 2018 crisis. Back then the U.S. financial crisis has grown into a global recession similar to the Great Depression of the 1930s in its scale and ramifications. In November 2008, the Fed resorted<\/a> to QE for the first time, buying $600 billion worth of obligations. While the indices kept on falling until March 2009, QE did help to slow down the fall.<\/p>\n

On March 15th, the Fed announced<\/a> a discount window allowing financial institutions to borrow money for up to 90 days. Reserve requirements were announced<\/a> to be reduced to zero. It seems that these measures were meant to support troubled businesses with accessible loans and prevent mass layoffs and bankruptcies.<\/p>\n

These are virtually the most radical measures to be taken by the central bank in one day. The Fed is ready to use all its monetary tools if the recession risks grow.<\/p>\n

The Fed chairman Jerome Powell expressed<\/a> concerns about the potentially weak business activity in Q2. He also noted that the government may use stimulating fiscal measures.<\/p>\n

\u201cThe thing that fiscal policy, and really only fiscal policy can do, is reach out directly to affected industries, affected workers,\u201d<\/i><\/b> Powell said.<\/i><\/p><\/blockquote>\n

Notably, emergency fiscal policy measures typically imply greater government involvement in the economy and thus greater distortion of market signals. The measures are also usually aimed at the long term effects.<\/p>\n

Powell stressed that the introduction of negative interest rates, similar to those in the EU and Japan, is unlikely. Given this statement and the current rates, the last resort for the U.S. authorities is the increase of QE (likely up to $1 trillion) and substantial fiscal incentives.<\/p>\n

Now, the Fed is getting ready<\/a> to give money to primary dealers (the U.S. top banks) so they can purchase cheapened corporate bonds, which represent companies\u2019 debts. The authorities are seriously concerned about the potential wave of bankruptcies.<\/p>\n

Not Drastic Enough<\/h2>\n

Even such extraordinary monetary incentives weren\u2019t enough. In fact, they just made investors more alarmed.<\/p>\n

The day after the interest rates were cut, the U.S. markets took one of the deepest dives in history. March 16th was the third-worst day for S&P 500, which lost 324.89 points (-11,98%) down to 2386,13.<\/p>\n

\"S&P<\/p>\n

S&P 500 chart. Source: <\/i>TradingView<\/i><\/a><\/p>\n

Historically, the worst day for S&P 500 was October 19th, 1987, when the index lost 20.5%. The second-worst drop of 13% took place on October 28th, 1929.<\/p>\n

On March 16th, Dow Jones lost 12.93%. The U.S. dollar index<\/a> went 0.4% down to 98,482, while gold went up a bit.<\/p>\n

European indices, including FTSE 100 and DAX lost over 7%, CAC 40 and Euro Stoxx 50 lost 8.8% and 9% respectively.<\/p>\n

Fiat Chrysler suspended most of its European production facilities until March 27th. The company\u2019s stock lost 10%.<\/p>\n

British Airways (BA) will cut<\/a> 75% of flight capacity trying to cope with the coronavirus outbreak. The company\u2019s stock price decreased by 26%.<\/p>\n

Eurozone finance ministers are considering<\/a> the possibility of using the European Stability Mechanism (ESM), which played a major role in the 2010\u20132012 debt crisis. Currently, the ESM has a lending capacity of \u20ac410 billion.<\/p>\n

On March 13th, the European Commission changed<\/a> its 2020 GDP forecast from 1.4% to -1%, evaluating the coronavirus damage as 2.5%.<\/p>\n

Brent crude oil went below $30 for the first time since January 2016.<\/p>\n

The Russian market, still shaken after the failed OPEC deal<\/a>, unsurprisingly went 3.79% down to 2228.5. RTS index lost 3.78%.<\/p>\n

Given all the emergency measures, the lack of a positive response from the markets signifies that the plunge of indices, commodities, and stocks isn\u2019t over. In addition, S&P 500 is falling faster than it did in 2000 and 2008.<\/p>\n

\"S&P<\/p>\n

S&P 500 performance during 2000\u20132002, 2007\u20132008, and 2020 crises. Source: ZeroHedge<\/i><\/p>\n

Global Recession Is Underway<\/h2>\n

In the UK, recession is defined<\/a> as two or more consecutive quarters of negative economic growth. The U.S. National Bureau of Economic Research defines<\/a> recessions as “a significant decline in economic activity spread across the economy, lasting more than a few months.\u201d There is also the term \u201cdepression<\/a>,\u201d which essentially means a long and severe recession.<\/p>\n

Experts at the U.S. largest independent broker-dealer LPL Financial are confident<\/a> that the longest bull market in the history of traditional finance is over. The analysts also note that the beginning of a bear market doesn\u2019t necessarily entail recession.<\/p>\n

\"S&P<\/p>\n

S&P 500 in bear markets. Source: CNBC<\/i><\/p>\n

According to LPL Research, over 70% of bear markets led to a recession, including those of 1990, 2000, and 2008.<\/p>\n

Some economists are confident that the economic downturn will last only a few months and the U.S. will be able to avoid a technical recession. JPMorgan experts expect business activities to get back up by mid-2020, when coronavirus spread slows down.<\/p>\n

Goldman Sachs experts believe<\/a> that S&P 500 will bottom out at 2,000 if the coronavirus continues to spread. According to the firm\u2019s equity strategist David Kostin, the epidemic will make a lot of companies lost revenues and influence the economy as a whole. Although, the analyst also expects the market to take a V-turn and S&P 500 to get back to 3,200.<\/p>\n

An international consulting firm McKinsey & Company suggested<\/a> three potential scenarios regarding the consequences of the coronavirus outbreak. The most pessimistic involves a global recession. The levels of consumption and savings will get back to normal only after Q3 2020.<\/p>\n

What About Bitcoin?<\/h2>\n

There\u2019s a common opinion<\/a> that Bitcoin exists all by itself and doesn\u2019t correlate with traditional assets. The proponents of this hypothesis claim that it makes Bitcoin a perfect asset for portfolio diversification.<\/p>\n

A technical analyst under the nickname Crypto Micha\u00ebl noted that people are selling equities, Bitcoin, and silver to grow fiat positions.<\/p>\n

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Doesn't seem unreasonable that people are selling their assets (equities, $BTC<\/a> and even silver) to just increase their cash positions out of economic instabilities due to the coronavirus.<\/p>\n

— Micha\u00ebl van de Poppe (@CryptoMichNL) February 26, 2020<\/a><\/p><\/blockquote>\n