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Experts say the crypto downturn shouldn’t affect the U.S economy

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The cryptocurrency market experienced a massive sell-off, causing its overall market valuation to drop and billions of dollars to be wiped out.

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This sell-off was further exacerbated by several macroeconomic factors that exposed several crypto institutions to insolvency and liquidation fears.

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However, the CNBC report shows that despite the huge losses recorded in the cryptocurrency market, experts believe that its impact on the US economy will be minimal.

What do the experts say?

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With the flash sell-off and subsequent loss of money, there are fears that the collapse of the cryptocurrency will trigger a wider recession in the US.

According to the report, a Goldman Sachs estimate showed that US households own a third of the global cryptocurrency market. In addition, a Pew Research Center survey found that 16% of American adults said they had engaged in cryptocurrency transactions.

These findings contribute to the growing influence and adoption of cryptocurrencies in the country, which has led to partnerships, sponsorships, and pop culture infiltration.

However, experts are confident that the impact of the collapse on the US economy will be minimal, since it is not tied to debt, the report says. This consideration is all the more important given that the cryptocurrency market is marginally smaller than a nation’s $21 trillion GDP or $43 trillion housing market.

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

“People don’t really use cryptocurrencies as collateral for real debts. Without it, it’s just a bunch of paper waste. So it’s last on the list of problems for the economy.”

Prominent venture capitalist Kevin O’Leary has stated that the decentralized nature of cryptocurrency is the reason why it won’t cause a recession. He said:

“The good news about the crypto economy and even positions like bitcoin or ethereum is decentralized holdings. This applies not only to the American investor. If bitcoin drops another 20%, it won’t really matter because it’s scattered all over the place. And that’s just $880 billion before the correction, which is a big deal.”

A recent Morgan Stanley research note also details that the majority of cryptocurrency transactions have remained in the crypto ecosystem. For example, it was noted that crypto lenders were mainly lending to crypto investors and companies.

As such, the risks associated with falling cryptocurrency prices will not materially spread to the wider fiat USD banking system.

Some experts believe that the massive selloff is a necessary cleansing that will lead to more sustainable business models in the crypto ecosystem. One such analyst, Alkesh Shah, Global Cryptocurrency and Digital Asset Strategist at Bank of America, said:

“The collapse of weaker business models like TerraUSD and Luna is likely good for the sector’s long-term health.”

However, Mati Greenspan, CEO of research and investment firm Quantum Economics, blames the Federal Reserve for the sell-off. He stated that:

“Central banks were very quick to print tons of money when they didn’t need it, leading to excessive risk and reckless leverage in the system. Now that they are taking liquidity, the whole world is feeling in a quandary.”

Continuation of the crypto winter

At its peak in November 2021, the total market capitalization exceeded $2.9 trillion. However, after hitting several all-time highs, the cryptocurrency market this year has struggled to replicate the gains of 2021.

Cryptocurrencies like Bitcoin and Ethereum have lost all 2021 gains. Bitcoin, for example, is still trading below its 2017 peaks at $19,220 at press time.

Cryptocurrency institutions also suffered losses. Cryptocurrency companies such as Celsius, Coinbase, Three Arrows Capital, and Babel Finance, among others, have announced operational problems.

As expected, several companies have made layoffs, work changes and user activity restrictions to slow the effects of the economic downturn. However, companies such as Binance have announced plans to expand their workforce and scale.

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