Experts say the cryptocurrency crisis should not affect the US economy

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The crypto market has seen a sell-off, sinking its total market valuation and wiping out billions of dollars.

This liquidation has been further exacerbated by various macroeconomic factors, which have exposed several crypto institutions to fears of insolvency and liquidation.

However, a CNBC report reveals that despite the huge losses recorded in the crypto market, experts believe that its effects on the US economy will be minimal.

What do the experts say?

Due to the sudden sell-off and subsequent loss of money, fears abound that the crypto crash will trigger a broader recession in the US.

According to the report, an estimate by Goldman Sachs revealed that US households own a third of the global crypto market. Additionally, a Pew Research Center survey found that 16% of American adults reported having transacted with cryptocurrencies.

Those findings add to the growing influence and adoption of crypto within the country, which has led to partnerships, sponsorships and breaking into pop culture.

However, experts are confident that the effect of the crisis would be minimal on the US economy because it is not tied to debt, according to the report. This consideration is all the more important considering that the crypto market is negligibly smaller than the country’s GDP of $21 trillion or the real estate market of $43 trillion.

Joshua Gans, an economist at the University of Toronto, said:

“People don’t really use crypto as collateral for real-world debt. Without that, this is just a lot of paper loss. So this is low on the list of problems for the economy.”

Famed venture capitalist Kevin O’Leary stated that the decentralized nature of cryptocurrencies is the reason it would not trigger a recession. He said:

“The big news about the crypto economy and even positions like bitcoin or ethereum, are decentralized holdings. It is not just the US investor exposed. If bitcoin were to drop another 20%, it wouldn’t really matter because it’s spread everywhere. And it’s only $880 billion before the correction, which is a big hamburger of nothing.”

A recent Morgan Stanley research note also detailed that the majority of crypto transactions have remained within the crypto ecosystem. He noted, for example, that crypto lenders have been lending primarily to crypto investors and businesses.

Therefore, the risks associated with falling cryptocurrency prices would not extend significantly to the broader fiat US dollar banking system.

Some experts believe that the sell-off is a necessary purge to lead to more sustainable business models within the crypto ecosystem. One such analyst, Alkesh Shah, a global crypto and digital asset strategist at Bank of America, said:

“The collapse of weaker business models like TerraUSD and Luna is likely to be healthy for the long-term health of this sector.”

However, Mati Greenspan, CEO of cryptocurrency investment and research firm Quantum Economics, attributed the sell-off to a failure by the Federal Reserve. He stated that:

“Central banks rushed to print loads of money when it wasn’t needed, leading to excessive risk-taking and reckless accumulation of leverage in the system. Now that they are withdrawing liquidity, the whole world is feeling the pinch.”

The crypto winter continued

At its peak in November 2021, the overall market capitalization was over $2.9 trillion. However, after hitting several all-time highs, the crypto market has struggled to replicate the successes of 2021 this year.

Cryptocurrencies like Bitcoin and Ethereum have shelled out all of the 2021 gains. Bitcoin, for example, is still trading below 2017 highs at $19,220 at press time.

Crypto institutions have also suffered losses. Crypto companies such as Celsius, Coinbase, Three Arrows Capital, Crypto.com, and Babel Finance, among several others, have announced operational difficulties.

Unsurprisingly, there have been layoffs, changes in operations, and restrictions on user activity by various companies to stem the effects of the recession. However, companies like Binance have announced plans to expand their talent base and the scope of their operations.