Back in 2008, when US investment bank Lehman Brothers Holdings Inc. filed for bankruptcy, it reduced people’s faith in the banking system to such an extent that a new class of assets, having no support from any formal bank, came into being.
The asset was bitcoin, which is now the most popular cryptocurrency. Bitcoin was first discovered in November 2008, about two months after the Lehman crisis.
While it had a beautiful run in the few years post inception, the cryptocurrency market is facing brutal times of late. Bitcoin is highly bearish and seems unable to mark a decent recovery, and has fallen by another 5% over the last 24 hours, to currently trading at $18,793.
On examining the current market conditions, expert investor Michael Burry has predicted an economic crisis of 2008 levels. He was one of the few who speculated about the 2008 housing and subprime mortgage crisis—which makes his prediction this time worth mentioning.
Why Is Burry Predicting An Economic Crisis?
Burry’s current prediction of the economic crisis is based on multiple factors. His prediction has come out following the crash in the crypto market.
Over the past week, bitcoin is down more than 8%. Despite the good response to the Ethereum merger, ETH price still seems to be under pressure from bearish pressure and the asset is down 9% in the past 24 hours.
Other altcoins like Dogecoin, Solana, Polkadot, MATIC, and Ethereum Classic have also fallen by 8% to 10%.
The dramatic crypto crash isn’t the only factor fueling the acquittal’s prediction. He has also highlighted The crash in the SPACs market, The market for the Special Purpose Acquisition Company peaked in 2021 but has been struggling since then. He also highlighted the fall in meme stocks.
The current inflation crisis is one of the major factors provoking the forecast. The Consumer Price Index has revealed that inflation is at record high levels despite the Federal Reserve’s efforts and involvement in quantitative tightening and interest rate hikes in order to curb it.
In a recent Jackson Hole speech, Fed Chairman Jerome Powell told homes and businesses to “get ready for pain” as the Fed fights inflation.
What’s Next For The Economy?
Clearly, the US economy is going through a tough phase. In addition to dealing with record inflation, the threat of a recession also clouds the economy. The market participants will be eagerly looking out for the upcoming CPI release.
The CME Fed Watch Tool is currently indicating a 75% probability of a 75 bps interest rate hike. Another favorable CPI data could propel the Fed’s aggressive stance.
