The current turmoil in the crypto market has seen several big names in the industry collapse which has fuelled FUD that a global recession might be underway. The market cap has dwindled by more than $2 trillion in value in a matter of months.
Retail traders who invest big have been on the receiving end, some of them losing their entire life savings. This has triggered a discussion on the spill-over effects on the broader U.S. economy.
According to a CNBC report, a few economists and bankers remain unperturbed. Speaking in an interview, they said there is a lesser chance of affecting the broader U.S. economy for one solid reason i.e, Crypto is not tied to debt.
“People don’t really use crypto as collateral for real-world debts. Without that, this is just a lot of paper losses. So this is low on the list of issues for the economy,” said Joshua Gans, an economist at the University of Toronto.
Gans says that’s a big part of why the digital asset market is still more of a “side show” for the economy.
“Crypto Borrowing Exist In an Industry-Specific Echo Chamber”
The economist then went on to say, traditional assets remain relatively stable over a certain period of time making them good collateral compared to crypto.
“What you haven’t seen with these assets class, simply because of their volatility, is that same process by which you’re able to use it to buy other real-world assets or more traditional financial assets and borrow off that basis,” explained Gans.
“People have used cryptocurrency to borrow for another similar currency, but that’s sort of contained in the crypto world.”
Meanwhile, Wall Street veteran and Bitcoin bull Mike Novogratz has just given one of the grim outlooks yet. This week Novogratz told MarketWatch that “the economy is going to collapse,” adding, “We are going to go into a really fast recession, and you can see that in lots of ways.”
He however did not make any reference to the crypto market.
Novogratz, CEO of crypto merchant bank Galaxy Digital, pointed to the housing market, which is finally cooling down after a two-year successful stint, and inventories piling up as signs of an impending recession.