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The Christmas Eve stock market panic which wiped out $12T in shareholder value may have been forgotten by the media, but it’s still fresh in the minds of investors. Many are still scared that it was an indicator that more troubles for the economy are still yet to come.
The Christmas Eve panic was, at the time, thought to be the end of the current bull market. However, the opposite seems to be true.
How dangerous is the situation currently? By most estimates, the fears are still present — just subdued. What’s bubbling under the surface are junk bonds, over-leveraging, and shady dealings, which may end up putting the entire economy in jeopardy.
The excitement of the market squeezing out another short-term rally is satisfying, but what’s happening behind-the-scenes is far more concerning. As Bloomberg reports, the overall picture paints an economy that is over-leveraged, segmented, and straining the limits of its recent supposed success.
The sale of junk bonds may be to blame.
Indebted companies are borrowing more and more to pay equity holders. Big-name initial public offerings (IPOs) are producing lackluster results, despite overwhelming publicity. In every sector of the economy, companies are over-leveraged and dubiously offering investment packages with hidden stipulations — as if reinventing the old garbage we saw back in 2007.
The question is, who will be left vulnerable when the game of musical chairs in the current market ends?
Repeatedly, we’ve seen alternatives to the existing financial system become more popular.
Despite this week being tumultuous for markets, the cryptocurrency space had an unprecedented run. Bitcoin (BTC), for one, is up some 60 percent since April 15 — as of the time of this writing. Some analysts have commented on Bitcoin being a possible hedge against Wall St. excesses, but that all depends on what’s left when the music stops.
Right now, what’s driving economic fears is speculative madness. Yet, the cryptocurrency market also has not moved beyond this infantile stage. We need adoption — but the fear is that that won’t come in time on a mass scale before the economy has a major reckoning.
Do you think the cryptocurrency market can survive an economic meltdown in the greater global economy? Let us know your thoughts below.
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