John P. Hussman, a respected stock analyst who formerly taught economics and international finance at the University level, recently tweeted that the US economy could potentially be in a debt bubble. He added that this bubble could be as big as The Great Depression of 1929.
While his tweet may seem, alarmist, many analysts agree that almost a hundred years of financial data back his claims. John P. Hussman points to annual Treasury bonds, the S&P 500’s nominal total returns, T-Bills as the reason for his belief.
The S&P 500 is considered by many to be a metric for measuring the health of the US economy. Bonds and T-Bills are used by the Fed to supervise the US economy. By buying or selling them, it regulates the money supply in the US economy.
According to Hussman, this system has been abused. In a chart he shared in his tweet, it is clear that the current economy reflects what it looked like in the 30s. Hussman added that while rates for bonds would remain positive for now, they could turn negative in the next decade. He is not the only one who holds this sentiment. Mohamed El-Erian, who is an economic adviser at Allianz, expressed similar sentiments during a recent Yahoo Finance interview.
This could be good for Crypto
One of the first investors in the crypto industry to draw attention to the tweets by Hussman was Nic Carter, the co-founder of COinmetric.io and a partner at Castle Island Ventures. Hussman is not the first one to predict the death of the finance sector. On November 29, a renowned crypto pundit tweeted that while mercenaries dominated Wall Street, missionaries dominated Bitcoin.
Since its creation, proponents of Bitcoin have claimed its heralds a new chapter in the world of finance. Many crypto enthusiasts claim that it will lead to the death of crony capitalism. Besides that, they claim it will make taxation obsolete while also giving access to financial services for about 1.7 billion people on earth.
When it comes to the predicted doom of the current financial system, its proponents claim this is an opportunity to stock up on Bitcoin.
The Data Does Not Support This Claim
However, the effect on the price of Bitcoin to the wider conditions of the financial market has been disputed. A recent analysis claims that the data does not support the belief that the market conditions influence the price of BTC. In the analysis, no correlation was observed.
It would thus appear that those hoping for a market crash to boost the price of crypto are wrong. One of the best tweets on the issue came from Vitalik Buterin in 2017. In his tweet back then, he noted that while the crypto market cap was at $500 billion, its altruistic objective of easing access to financial services for the unbanked masses had not been achieved.
If the crypto sector wants to grow, helping the masses access financial services will do more for it than hoping for a financial crash. It’s no secret that individuals in society are still skeptical and uncomfortable with cryptocurrency. Arguing a financial crisis would spark crypto in a positive matter is a bold statement. If there was another financial crisis, one could argue that investors would become conservative, especially since the baby boomer generation already went through it once. “Fool me once shame on you, fool me twice, shame on me.” If the crypto industry is still foreign to a majority of society, it’s hard to argue that everyday investors would be deploying their capital into the sector following a financial crisis.
Image Source: Flickr