Following the opening of trading via ETFs for Bitcoin and Ethereum in Hong Kong by the Asian branch of the HSBC banking group, here comes the first jibe at the US market.
According to the financial giant’s asset manager, the United States will soon enter a recession, with obvious repercussions on the European front as well.
What will happen to the crypto market in the event of a US recession?
All the details in this article.
HSBC, Hong Kong’s largest banking institution, warns of an impending recession in the US
The “Hongkong & Shanghai Banking Corporation,” also known by the acronym HSBC, announced just yesterday that it will open up to cryptocurrency trading in Hong Kong, more specifically via ETF futures for Bitcoin and Ethereum.
The multinational banking company, which posted a net profit of $15 billion in 2018, chose to focus on the crypto sector given the tensions at the regulatory level in the United States following the latest SEC allegations.
It is possible that Hong Kong, or Chinese business exchanges more generally, will be the next dominant exchanges for the cryptocurrency industry given the complexity of the US framework.
Further complicating the situation were the latest statements by the Global Chief Strategist of HSBC’s Asian subsidiary, Joseph Little, who predicted a US recession starting in Q4 2023 with a year of economic contraction on the horizon for Europe as well.
These are his words as reported by CNBC.
“We are already in a mild profit recession, and corporate defaults have started to creep up too. The silver lining is that we expect high inflation to moderate relatively quickly. That will create an opportunity for policymakers to cut rates.”
Despite the highlighting of a red flag for Western markets, Little believes the Federal Reserve will begin its move to cut interest rates at the end of the year, which translates into a boon for the stock market and more speculative financial products such as cryptocurrencies.
The asset manager of HSBC Bank of Hong Kong continued his speech by pointing out that if the recession comes too quickly for the US, the risk of deflation, and hence a slowdown in asset growth, will be very high.
The recession will be more like the recession that occurred in the early 1990s that led to a 1-2% decline in GDP.
Overall, the situation is becoming very uncertain and unstable for the US, which faces simultaneous problems of high inflation, interest rates of 5.25%, and a Treasury debt that continues to rise.
Little suggested that despite the feasibility of a reduction in the Fed’s restrictive monetary policies, markets will face bad news for the next 6 months and may react badly.
“We think the incoming news flow over the next six months could be difficult to digest for a market that is discounting a ‘soft landing’.”
Recession risk: what will happen to the crypto market?
Despite the announcement by HSBC of Hong Kong about recession risk for Western markets, many supporters of the crypto world appeared unconcerned.
In their view, recession risk has already been priced into the markets over the past few months, and the banking institution’s predictions have come late to the real events in the Western world.
In addition, the term recession, which basically means a situation where a country’s GDP declines for two consecutive quarters, is unrepresentative of the outlook for the United States, where the labor market remains strong.
In addition, there is the fact that HSBC, despite being headquartered in London, produces most of its revenues in Asian markets, and may have interests in downplaying the strength of US markets
In any case, a condition of rapid deflation, would unquestionably lead to a slowdown in the country’s economic growth, with obvious negative consequences for speculative markets, especially for stocks.
Generally this happens because households in difficult times, decrease consumption, reduce investments and try to save as much as possible, causing a downturn in the most volatile financial products.
As for the cryptocurrency sector, the situation becomes much more complicated than it seems.
A US recession would trigger a wave of panic selling on all existing cryptocurrencies, even those with more capitalization such as Bitcoin and Ethereum.
On the other hand, there is the fact that after HBSC’s announcement that it would open crypto ETF trading in Hong Kong, cryptocurrency prices could recover quickly from the shock of a US disaster, as they are not tied to a specific territory.
If the risk of a real recession is real, major mining companies located in the US north could find it difficult to continue their operations, and the hash rate could take a hit after the record highs reached in the last period.
The Intersection of all these dynamics makes analysis of the short-term future of the crypto market very uncertain.
Beyond that, in the long run all these complications of the traditional financial world only reinforce the narrative of a decentralized economy untethered from central intermediaries.
Bitcoin and Ethereum may well have downward declines between now and the next few months, but the long-term fates are now clear to everyone, including managers at HSBC in Hong Kong.
In this regard, there are those who speculate that the strategy of the banking giant is to spread FUD to buy at lower prices.
While this remains an unfounded theory without supporting information, it could be plausibly feasible.