Economic Jitters to Likely Dent Sentiments; Will Crypto Markets Sink or Swim?

Crypto markets have been hanging on the edge since the latest economic uncertainty has grappled markets. From global layoffs, collapsing banks, and bursting real estate bubbles, the macroeconomic outlook for the rest of the year is currently in the doldrums. With rising uncertainty, fears have also mounted about the trajectory of cryptocurrencies’ future.

Banking crisis dents economic markets

According to a Bloomberg report, fears over commercial real estate have returned to the global scene as a result of the issues at New York Community Bancorp. Since the pandemic began, the commercial real estate sector has been in disarray, and investors are still worried about the consequences of the declining value of office buildings and other properties globally. Recently, NYCB sent another caution signal to the markets when it reduced its dividend and unexpectedly put more money aside to cover losses on subpar real estate loans.

This comes right after the fresh collapse of China’s biggest real estate company, Evergrande. The real estate giant was ordered to liquidate by a Hong Kong court after it failed to repay its debt.

In the wake of a real estate and banking crisis, sentiments around riskier assets like crypto will tarnish till the market doesn’t see positive cues around the segment. However, another side of the investment sentiment could see markets trying to escape centralized investment that involves regulations. The market has long-priced bets that rising debt and global economic downturn will see regulatory measures to curb it. However, this could result in losses for those who own a large sum of centralized assets. In such cases, investors will look forward to a decentralized option, possibly increasing the value of crypto.

Layoffs further cripple market outlook

Tech and financial giants have jumped the layoff bandwagon heavily since 2023. Even crypto and Web3 firms have braced for the impact of the same uncertainty. An example of this is Polygon Labs’ decision to cut roughly 19% of jobs. However, the company clarified that the reduction in workforce was not due to financial reasons but to enhance performance. Additionally, SNAP token creator, Snap Inc announced slashing jobs. Snap’s decision to reduce 10% its workforce was in tandem with other global players like Alphabet, Citi, Deutsche Bank, etc.

Will crypto markets face the wrath?

Markets for cryptocurrencies typically follow those of bigger finance. An erratic and unpredictable financial environment has historically been bad for the virtual asset industry. When investor interest in riskier assets is strong and the market is steady, cryptocurrency markets thrive best.

However, the outlook for many cryptocurrencies, especially that of Bitcoin is anticipated to be positive this year. Various institutions have been placing bets that prices for the OG-crypto will see an upscale in the future. This includes Bitwise’s forecast that in 2024, the price of Bitcoin will surpass $80,000. For the first half of 2024, at least, institutional investment in Bitcoin will continue to be the main focus, according to Coinbase.

Nonetheless, there would be some spillover effects into the cryptocurrency markets if there were a more significant world market collapse. This could manifest as a slow trend of price ascent or decreased trade volumes.

Source