Examining “The Next” Financial Crisis In Regards To Cryptocurrencies And Corporate Debt
Can Cryptocurrencies Save The World During The Next Financial Crisis?
About eleven years ago, the world entered a financial crisis which was only the last one in a long string of similar financial disasters. This crisis was led by mortgage debt, and after the Lehman Brothers went bankrupt, a lot of large companies started experiencing consequences. All of a sudden, all key processes involved with running a business — such as paying suppliers, workers, or transport services — stopped without warning.
The crisis was resolved after a while, but the danger of the next one is still hanging in the air, and it is questionable whether central banks have the necessary tools to deal with it, as they did in the past. The Triple B grade debt, which is the lowest quality tier of investment-grade debt, has grown exponentially in the last twelve years, going from $750 billion in 2007 to over $2.7 trillion in the US.
Furthermore, the world currently finds itself in a very delicate position, with a number of incidents either happening right now or waiting to happen at any given moment. Some examples include the trading war between the US and China, China's own slowing growth, the UK's “Brexit,” rising geopolitical tensions in Asia, and a number of other issues all over the world.
Obviously, the situation does not look good, and there is a vast sea of reasons for concern about the future. Meanwhile, the earning reports are getting weaker, while the interest rates continue getting higher, which further damages the markets.
With all of this in mind, managers of private credit funds warn that the corporate credit will likely be one of the hot topics in 2019 and that it would be a bad idea to lend to highly indebted firms. The reason for this is that companies rarely borrow funds to focus on research and development. Instead, they are borrowing money to buy non-productive shares simply to increase the value of the stock belonging to senior executives.
How Can Cryptocurrencies Help Out?
As mentioned, the last financial crisis ended relatively quickly, as the central banks managed to identify the logjams and resolve the problem. This only worked because the major players in the crisis turned out to be large nodes of the global financial system. Things will likely not be as easy to resolve when it comes to Triple B grade debt. It is difficult, if not impossible to assess which companies should be rescued in such a situation, and which should be left to their fate.
Furthermore, the banks would have a tough time justifying any decision they make. However, there may be another solution — one that emerged during the last financial crisis, and which we know today as cryptocurrencies.
The last financial crisis proved that banks are no longer trustworthy, which is why Bitcoin was invented. Over the years, other coins emerged, while Bitcoin attracted most of the money and attention. While there were numerous incidents along the way, the crypto trend exploded in 2017, announcing its existence to the world, attracting investors left and right.
While the following year, 2018, managed to bring a long-lasting crypto winter which started with a market crash in January 2018, cryptocurrencies never lost investors' interest. In fact, their ability to survive the winter and even make progress in other aspects of the industry earned them quite a lot of respect, and even a second thought when it comes to skeptical institutions.
Today, the crypto market is only a fraction of what it was in late 2017, but it is still a hot topic, and one of the most talked-about aspects of the financial industry. While the market remains tiny in comparison to the fiat markets, the world is aware of them, and everyone is following them silently, even if they are not interested or willing to invest.
However, while they may be volatile and risky at the moment, they are the best alternative that the financial world has in case of another crisis. Everyone knows about them, they are decentralized, and they spent an entire decade trying to prove that they are not a scam.
In other words, they work, and when the next financial crisis hits, it may very well result in the world going full crypto, just like it turned to gold during harsh times experienced in the past. This was already observed in countries suffering from inflation, such as Venezuela. Meanwhile, as the banks and the governments continue to prove that they can't be trusted anymore, the world is getting more and more ready to go decentralized.
While the future looks quite grim at the moment, and it will undoubtedly be bad if things do not change, there is a bright spot, and that is cryptocurrency. It may not be perfect, and it is nowhere close to solving all of its issues and reaching its full potential, but it is the best alternative we got.