Proof Of Change

Technological breakthroughs are all about timing. Dropbox famously benefited from launching at the time when the first Smartphones started emerging and suddenly file-syncing between devices started to matter. Virtual Reality is slowly grinding its way towards adoption with new devices coming out. Similarly, Cryptocurrencies emerged at just the right time.

In the aftermath of the Financial Crisis of 2008, the trust in traditional financial institutions was damaged whilst loose monetary policies encouraged a generational run-up in asset values. Economic growth did not return to pre-2008 levels but broadly speaking, no major recessions struck.

Today we seem at the brink of change. The Pandemic and Russia’s invasion of Ukraine shocked the foundations and loose monetary policy drove inflation to long-unseen levels. Most indicators such as consumer confidence, real income, shipping rates and so on all point towards a quickly approaching recession. This is happening in parallel to US rates tightening which is sending further shock waves through the world economy.

The US 10-year government bond yield is a major indicator of coming developments. Generally, the 10-year yield going up imply an expectation of economic growth. With US rate tightening, yields have recently been on the way up, albeit still on a low level. How long this will last is anyone’s guess but various smart market observers expect this final indicator to start pointing towards recession soon.

The consequences for crypto markets could not be more significant. The industry is facing its first ‘real’ recession test. The economic macro environment is changing rapidly. Previous crypto bear markets did not coincide with worldwide recession. This one could.

Is the crypto market mature enough to separate from macro trends and continue its growth based on industry and technology fundamentals? That would mean that the timing of crypto to start making a true impact on the world is right. Or will we see another major drop as capital escapes into perceived safe havens like US Dollars?

Whichever way it goes, it could shape crypto’s narrative for a long time to come. The next few months will show where we stand.