SCENARIO WHEN CRYPTO CRASHES...!
Recent growth in the cryptocurrency markets has caused many to speculate that the sector currently exists in the middle of a bubble and people are understandably worried. With the notorious dotcom crash and the resultant severity of the financial crisis that it spawned still raw in the memories of many investors, fears are rife that the popping of this particular bubble could prove disastrous for the world economy.
Putting aside the ways and means in which the Bitcoin bubble might conceivably burst (and rest assured, for every scenario, there will be developers and tech leaders working on a preventative solution) let us assume the worst and say that it does. What happens then?
First, there will be the investors in Bitcoin itself, who would see their investment disappear in a heartbeat. However, the burst would also impact the rest of the altcoin sector. Like it or not, all other digital currencies look to Bitcoin as the flagship of their industry. If Bitcoin sinks, it will drag all of the other altcoins down with it, as confidence in the very idea of digital currency is shaken to its core. At current estimates, that is $580 billion worth of real cash taken out of the global economy.
That said, the global economy is a hardy beast, and seemingly astronomical figures like this would barely register on their radar. Of course, there is the roll-on impact of lack of confidence in other markets that can often spring from nothing, driven by media reports of such things as a Bitcoin crash, which is why many mainstream financial institutions are keen to distance themselves from Bitcoin as a currency until it can stabilise itself.
Outside of the markets, the real victims would be those retail investors who pumped all of their assets into Bitcoin in the expectation of concrete returns. These are often mid- to large-scale enterprises, looking to boost their profits through investment in what seems like a can’t-lose prospect. Should a crash occur hundreds of enterprises could be driven to bankruptcy, having a huge impact on local economies and communities, as redundancy kicks in and unemployment rates rise, not to mention the loss of further investment opportunities for the foreseeable future.
We can only hope it doesn’t come to pass.
images from medexpressrx and dashforcenews.com
Yes, I really hope that small/mid range enterprises haven't overstepped and put too much in this market. Hopefully the once who chose to enter have good debt coverage. While I love what's happening, it's hard to refute that it is terrifying.
However, while a crypto crash would hurt lots of retail investors, it might have a positive effect on other equities/securities as money flows out looking for a new home to make a decent return. Considering the people who just had money in crypto, put their money into an insanely speculative asset, wanting 100% returns YoY, it's possible that this risk tolerance could carry over to the stock market, as investors look to high dividend yielding companies/ smaller tech plays to realize the greedy gains they've become accustomed to, thanks to crypto.
Good write up, man!