This past week was quite remarkable, with the price of the S&P 500 index falling more than 3.5% in just one week. This might not seem like a lot for crypto investors, but for stock market investors, it\u2019s huge, especially in such a short period of time. But what caused this\u00a0? Let\u2019s dive\u00a0in<\/p>\n
This crash has impacted not only the crypto market but also the stock market, with the NASDAQ, for example, dropping by more than 1,000 points\u00a0:<\/p>\n
The good news is that Bitcoin only took an -8% hit during this period. Usually, it can fall much lower, considering Bitcoin is still a high-risk asset with a historical correlation to the NASDAQ, which is a tech-heavy index. This is due to a wide range of factors I mentioned in my last article (US Presidential elections, Nvidia FUD, etc.), but today I want to focus on the biggest concern: the fear of an economic recession.<\/p>\n
\u201cRecession\u201d is a word that has been overused in recent months\u200a\u2014\u200ain presidential speeches, on Twitter, and it\u2019s on the minds of many investors. But what is a recession\u00a0? It\u2019s a decline in economic growth, which can be caused by inflation, poor interest rate policies, and\u00a0more.<\/p>\n
To gauge the health of an economy, we look at statistics like unemployment rates, inflation, job creation, etc. This is what the Federal Reserve monitors before making decisions on interest\u00a0rates.<\/p>\n
Currently, US inflation numbers are quite encouraging, with inflation at 2.9% and expected to drop to 2.6% this month. However, the true inflation indicator, which uses real-time data, shows inflation at 1.25%\u00a0:<\/p>\n
Meanwhile, the employment rate is rising but remains under\u00a0control<\/p>\n
bls.gov<\/p>\n
But Why Are Investors Panicking\u00a0?<\/p>\n
One of the indicators highly correlated with a recession is the yield curve inversion spread between the 10-year US bond and the 2-year US\u00a0bond.<\/p>\n
In the graph, you can see the yield of the 10-year US bond in blue, and the yield of the 2-year US bond in red. Under normal circumstances, 10-year bonds have a higher yield than 2-year bonds because there\u2019s more uncertainty over a 10-year period. However, when that\u2019s not the case (orange curve), it indicates that investors are pessimistic in the short\u00a0term.<\/p>\n
The interesting thing is that when the yield curve returns to the usual ratio (green curve), a recession is often near\u00a0:<\/p>\n
Source\u00a0:\u00a0FRED<\/p>\n
As you can see, the same graphic shows grey zones representing US recessions. Investors are worried that we might be heading toward another one\u00a0soon.<\/p>\n
Personally, I don\u2019t believe this will happen because US economic statistics are strong, but at the end of the day, market sentiment drives the market, so we\u2019ll have to wait and\u00a0see.<\/p>\n
As always thank you for reading\u00a0!<\/p>\n
Follow me on\u00a0twitter<\/strong><\/a><\/p>\n My favorite Crypto Faucet\u00a0: <\/strong>Cointiply<\/strong><\/a> (referral)<\/strong><\/p>\n Read exclusive articles on publish0x<\/a> and if you want to support me for free you can sign in with this\u00a0<\/strong>link<\/strong><\/a><\/p>\n Disclaimer\u00a0: This is not a financial advice, you need to do your own research\u00a0!<\/em><\/p>\n The Truth Behind the Stock and Crypto Market Crash<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":" This past week was quite remarkable, with the price of the S&P 500 index falling more than 3.5% in just one week. This might not seem like a lot for crypto investors, but for stock market investors, it\u2019s huge, especially in such a short period of time. But what caused this\u00a0? Let\u2019s dive\u00a0in General Crash […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-4850","post","type-post","status-publish","format-standard","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/4850"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4850"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/4850\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4850"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4850"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4850"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}