It is often predicted that the dawn of cryptocurrency will arrive at the foot of an economic crisis. Nouriel Roubini, a well-recognized economist and a professor at Stern School predicts that a financial crash will hit the US markets by 2020 and it shall be worse than the 2008 recession.
Roubini outlined on Project Syndicate, the 10 major factors that will onset the next financial crisis and amongst them, the major contributor will be the rising inflation rate dictated by the Federal Reserve (FED). Roubini wrote:
“Second, because the stimulus was poorly timed, the US economy is now overheating, and inflation is rising above target. The US Federal Reserve will thus continue to raise the federal funds rate from its current 2% to at least 3.5% by 2020, and that will likely push up short- and long-term interest rates as well as the US dollar.”
Fiat money or reserve currencies is controlled by one entity that is the central bank. The value of fiat money represents the economic state of a nation and thus tends to be stable. Although, a rapid rise in the inflation rate and the overheating economy could lead to the devaluation of the currency.
Currently, major currencies like US dollar, the pound sterling, Chinese yuan, and Japanese yen are standing strong. However, if a financial crisis as predicted by Roubini and most recently, Kim Dotcom knocks our door in the next two years, then every traditional asset and commodity including stocks, bonds, and currencies will suffer a steep decline in value.
The big crash is coming.https://t.co/1K5tZqogTA
Buy Crypto and Gold!
— Kim Dotcom (@KimDotcom) September 17, 2018
In 2018, the cryptocurrency markets have suffered its fourth-worst correction in history after recording an 80 percent decline in valuation. Although, several cryptocurrencies still managed to outperform a handful of national currencies including the Argentinian peso, Venezuelan bolivar, and Turkish lira.
Roubini emphasizes that by the next recession the financial obligations of the US will intensify leading to circumstances that are worse than the 2008 financial crisis. Roubini further explained:
“Finally, once the perfect storm outlined above occurs, the policy tools for addressing it will be sorely lacking. The space for fiscal stimulus is already limited by massive public debt. The possibility for more unconventional monetary policies will be limited by bloated balance sheets and the lack of headroom to cut policy rates.”
Would Bitcoin be a Saviour?
Bitcoin has its fair share of critics, including Roubini who believes that cryptocurrencies offer no value to the economy and that they have failed to evolve into major currencies.
The founder and partner at Morgan Creek Digital, Anthony Pompliano (a.k.a. “Pomp”), states that the institution will be pushed to invest in the cryptocurrency market as an alternative to traditional assets in the upcoming years. The rise in adoption of cryptocurrencies by regulated financial institutions like Goldman Sachs, Morgan Stanley, and Citigroup, embodies Pomp’s statement.
Unpopular opinion: Institutions will come under pressure in next 5 years if they have 0% exposure to Bitcoin & digital assets. As fiduciaries, they need to invest capital in the best risk-adjusted opportunities.
Digital assets historically provide best returns per unit of risk.
— Pomp ? (@APompliano) September 16, 2018
Although facing bear markets, Cryptocurrencies are observing an increase in interest by notable companies Coinbase, BitGo, Goldman Sachs. The emergence of the next financial crisis will in most probability fuel the precedence of the crypto sector over the traditional finance market.