Economists said the EU's disintegration, the Marshal plan (European post-World War II revival plan) modern times for the United States and a sustained drop in demand are the potential consequences of the Corona virus crisis.
Central banks are sweating in tears at the prospect of an impending global recession this year. On Wednesday, the Bank of England reacted to the economic shock from Covid-19 with an emergency interest rate cut to calm markets. Head of the European Central Bank, Christine Lagarde proposed a financial crisis on par with 2008 that would appear in Europe if the Eurozone (eurozone) did not act sooner.
Even before Monday's black selling fever, about $ 9 trillion was wiped out of the global stock market in nine days, the US Central Bank said in a research note in the week. before. Bitcoin and other cryptocurrencies, inevitably followed.
said Mati Greemspan, founder of the analysis site Quantum Economics. “We should look at the current stock market movements to calculate how to trade on the crypto market,” “At least until we see a significant disconnect between the two. This may come later, once we understand more about the economic impact and how long it takes to see a certain recovery. There is currently too much uncertainty to make any kind of statement. "
So what happens next? We spoke with financial experts and economists to have their look on the next 12 months and beyond that can look for the global economy and cryptocurrencies.
How widespread is the collapse of the corona virus crisis?
The “perfect storm” (an extremely bad situation in which many bad things happen at the same time, uninterruptedly), an oil price war and the outbreak of corona virus, can get worse. worse before it gets better, experts believe. The impact of the corona virus economic crisis could last for a year and many people fear the global economic recession is inevitable. In many Western economies, long-term interest rates have been close to zero. Despite reducing interest rates and $ 1.5 trillion injected into the banking system, markets are showing a difficult phenomenon to revive.
Italy, the eighth largest economy in the world, has turned to mortgage payment suspension measures to reassure 60 million people in quarantine. The nation's current five-figure corona virus infection rate, with new infections leading the world, has become an experiment on how a Western economy can close down. like the whole country.
But according to other experts. Their views on how big the global economic collapse will be.
"This corona virus crisis is different from the general economic crises we know, said Edward Cartwright, Professor of Economics at De Montfort University, Leicester City, UK. “Instead of reducing demand, our ability to produce and consume goods is limited.” “Indeed, the current situation is almost like a natural disaster in which the productive capacity of an economy is excluded from action for a period of time.”
The Italian tourism industry is falling into bankruptcy Photo CCN.
Potentially, this means that the economy that can recover quickly from the current crisis is basically unchanged. But, there are many reasons to be concerned, Cartwright said: "First, the current crisis will require active participation from governments to promote everything while we wait for small businesses. and low-income people are very vulnerable. Second, it is likely that this supply-side shock may lead to a sustained decline in demand. "
The global economy is at stake with the US-China trade war and the general slowdown. So it may not be easy just to 'get back to normal,' he added.
Zach Abraham, Chief Investment Officer of Bulwark Capital Management, a financial services company, agrees that the current economic situation is extremely unique, different and unpredictable.
“This is a different situation than it was in 2008, but in some cases it is much more difficult to predict because of the problems caused by the surplus that is happening in every market,” he said. “The variables are endless and most of them should not rush at the moment.”
Covid-19 and the oil price shock will not cause everything to collapse, he said. But knock-on effects are certainly possible.
For example, oil prices will lead to significant default in the corporate debt market.
But Stephen Moss, founder of peer-to-peer investment platform Sourced Capital, is more optimistic. "We are preparing for the worst impact and not building from scratch, it's a much better position. When it passes, we will see an immediate fight back as before and the biggest threat to the current market is the uncertainty of what might happen, not the reality. of what is likely to happen. “
People were worried about job security, according to a survey published today by anonymous professional networks Blind. More than half of the people polled are concerned about job losses, especially those working for technology giants like Google and Apple.
US Marshall Plan for the 21st century
In recent times, the so-called “great moderation”, he sees central banks cutting interest rates to the lowest level, so there are not many opportunities for more moves to stimulate the economy. International.
“I'm expecting Western countries to come up with some extraordinary plans, like what we can see during the 1929 crisis.” Economist Paolo TASca, CEO of the Blockchain Technology Center of the University of London. But he added that not all economies will have this luxury.
“The United States will be able to design a new Marshall Plan to cope with the crisis.” TASca said. It is possible because they have a unique voice. In Europe, there is no common budget, no common balance sheet, no common army and refugees who are fighting the fragile Greek barriers to enter the EU without being able to.
Despite efforts to stop the virus and the failure of the healthcare system in the US, TASca does not believe that the country will be affected as badly as Europe. The lack of testing and the fact that it could die from another disease, while having corona virus, will help blur the true impact of the disease, he said. “From a cynical point of view, it might be helpful to not investigate the exact cause of death.”
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This is huge.
– Stephanie Wittels Wachs (@wittelstephanie) March 11, 2020
My father is a 77 year old Republican. He loved Trump.
He is also a retired doctor. After seeing Trump handle corona virus, he stopped supporting Trump and said he lost the vote.
Stephen Moss advised not to panic. “I think it's foolish to think that we have to face the apocalypse of the market, at least in this period.”
Like cryptocurrencies, assets like oil and gold are highly volatile, he explained. “The initial investor movements seen in recent weeks suggest that we will see its upheaval as a result of the COVID-19 pandemic.” But he added that these are also some of the fastest-recovering markets.
Investors will wait for the bottom and reap the rewards
"Even in this time of crisis, people with liquidity will make a lot of profit later, because they will buy at discounted prices. They will wait until the market bottoms out, "TASca said. “This will widen the difference between rich and poor.”
With Bitcoin, TASca even increased in price. "In general, I think Bitcoin is still a safe haven. I don't think there is any reason to believe the opposite, "he said. “There is no signal that a bear market entry or the market will collapse by 2020.”
Edward Cartwiright said. “How asset prices react will depend largely on market sentiment about the long-term consequences of the crisis.” "Will some companies go bankrupt? Will companies be able to get their supply chain up and running smoothly? Will the government have to significantly increase its loans? Currently, there are many unknowns that investors will naturally be attracted to safe assets.
But this does not necessarily mean that investors will stay away from cryptocurrencies, he said. “If cryptocurrencies are considered to be an asset that isolates from the corona virus shock and the near-inevitable slowdown in the world economy, then their prices will rise.”
Bitcoin 7-day price chart | Source: Coinmarketcap
While a lot of uncertainty, to attract investors, cryptocurrency businesses are taking action; change, reduce transaction fees.
But, for now, investors still lack confidence in government initiatives to support the economy and control corona virus. That uncertainty affects all sectors of the economy, including cryptocurrencies.
And the market is asking tough questions. Not only the speed and effectiveness of efforts to prevent the virus and its economic impact, but also the uncomfortable trade-off between the two sides.
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