A major global economic recession may be in store for later this year the likes of which hasn’t seen since the Great Depression seized the world stage in the 1930s, the International Monetary Fund (IMF) said on Tuesday, April 14th.
The IMF asserted that grim assessment in the organization’s newly published April 2020 “World Economic Outlook” report. Therein, the body’s specialists concluded the ongoing COVID-19 coronavirus pandemic posed an unprecedented and rapid shock to the world, both to its health systems and its markets.
Gita Gopinath, the chief economist at the IMF, noted in the report’s foreword that the current “Great Lockdown” event could considerably slow global economic growth for the foreseeable future and that things could get worse yet:
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown, as one might call it, is projected to shrink global growth dramatically. A partial recovery is projected for 2021 … but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound. Much worse growth outcomes are possible and maybe even likely.”
Bear Market Inbound?
The world economy will face a deeper recession if further COVID-19 waves necessitate longer societal containment practices, Gopinath said.
Currently, then, a best case scenario may be a mild recession sinking in this year only to clear up at some point in 2021. But that’s arguably a very optimistic scenario, and to be sure even a mild recession has bearish implications for world markets and the cryptoeconomy.
Things went decisively bearish on March 12th, since dubbed “Black Thursday,” when the World Health Organization’s designation of COVID-19 as a global pandemic led to major intraday sell-offs across risk-on assets like stocks and cryptocurrencies.
Noted sell pressure in these bearish markets continued until March 23rd, after which a rosy influx of buy pressure into the top U.S. stock indexes pushed Wall Street into bull market territory again. It was one of the fastest bear-to-bull reversals in history, and it’s come almost inexplicably as COVID-19 is far from totally contained in the world, uncertainty abounds, and the pandemic’s challenges to healthcare systems and economies remains massive.
Accordingly, a major thread to watch going forward is if the top cryptocurrencies, bitcoin (BTC) and ether (ETH), track Wall Street as they largely have since Black Thursday. Indeed, in late March, both BTC and ETH reached an unprecedented level of correlation with the major S&P 500 stock index.
This correlation wavers, has varied over time, and surely won’t be there forever, but for right now amid the current economic climate it shows investors are generally trading top risk-on assets in the same way. That means BTC and ETH seem primed to track Wall Street for the foreseeable future, whether bearish or bullish.
In other words, the top cryptocurrencies will need more time to escape the gravity well that is mainstream finance, even if they are distinct and uncorrelated assets in the making.
In some ways, crypto has already cracked into the mainstream. In other ways, crypto is on the cusp of cracking deeper into society. And in other ways yet, crypto is still far from where it needs to be to help everyday people. As such, the current pandemic-driven health and economic crises pose as many challenges as they do opportunities for the space. Things may get worse before they get better, but there’s real chances at hand to make peoples’ lives better over the long haul.
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