Growing fear has spread across the markets as the world continues to fight the Coronavirus pandemic. Last week the markets were stained red, although Bitcoin still has a lot to offer.
The Coronavirus has been responsible for the US financial markets suffering a rapid decline, ranging from record highs to the bear market. In fact, it represented the steepest drop since October 1987.
Experts have grown tired of repeating that markets don’t like uncertainty. However, the situation around the new pandemic has led to fear being the main driver of the market.
Therefore, Bitcoin and cryptocurrencies have not been the only ones that have suffered from the Coronavirus. However, the fall in financial markets may pose a risk to the economy.
Is a financial crisis possible?
In recent years, the world economy has experienced relative growth, which has caused companies, seeking to take advantage of low interest rates, to issue bonds whose income would be used to grow their businesses.
Thus, according to the Institute of International Finance, corporate debt between non-bank entities reached $ 75 billion at the end of 2019, an increase of 56% compared to 2009.
The problem is that the spread of Covid-19 has paralyzed the economy, while the price of oil falls sharply. This obviously raises questions about the ability of these companies to pay their debts.
Therefore, the default of the debt could lead to further destabilization of the financial markets and, without a doubt, would aggravate the economic shock.
In fact, Lotfi Karoui, Head of Credit Strategy at Goldman Sachs, stated according to CNN that “default and downgrade risks have risen to their highest levels since the beginning of the current business cycle“
Mark Zandi, chief economist at Moody’s Analytics, noted that it is difficult to predict the depth and severity of any recession. So Bitcoin has not been the only one that has suffered.
Likewise, in the recent Financial Stability Report, the International Monetary Fund (IMF) warned about the size of risky corporate debts, which could amplify problems and deepen the next recession.
The situation is so troubling that the Federal Reserve announced that it will launch a series of massive cash injections into the financial markets, and will begin buying longer-term government bonds. Aiming to provide some stability and confidence in the market.
This shows that cryptocurrencies, specifically Bitcoin (BTC), have not been the only ones that have suffered from the spread of the Coronavirus.
In this way, the US financial market showed signs of improvement on Friday. After President Donald Trump’s announcement in which he declared a national emergency. However, how long will this stability last before sinking?
Bitcoin will be stronger than ever
As we expressed earlier, Bitcoin (BTC) is the ideal backup when people fear Fiat money, inflation, or depreciation.
So, being one step away from a possible financial crisis, Bitcoin could be the cure we’ve all been waiting for. Being precisely the moment for which BTC was born after the financial crisis of 2008.
Unlike the financial market, Bitcoin and cryptocurrencies have undergone a relative recovery without help from anyone but their trustworthy investors.