2022 as it seems is a hard year for the financial markets. The inflation rate around the globe and among countries increases as time goes by. The war between Russia and Ukraine still continues. All of these, of course, have a dramatic effect on the financial markets and the way they develop. Nowadays, most investors are afraid to invest their money in financial markets and buy assets. Because of that, the stock, Forex, and crypto markets see a significant decline in volume and liquidity. They remain volatile and constantly continue to go down. The main reason why investors avoid investing their money in financial markets is that they are afraid of losing funds, because of the current crisis. Some experts and analysts even compare this crisis to the 2008 crisis, when the banking systems and financial institutions, as well as markets, failed. Let’s see whether or not this situation can lead us to the 2007-2008 crisis-like situation.
Is the Current Economic Downturn Close to the 2008 Crisis?
As mentioned, today’s crisis is often referred to as the crisis of 2008, which is usually called the great recession. Even though there are some similarities between these two crises, it should be stated that there are some differences as well, which leads us to the conclusion that the current crisis isn’t even close to 2008’s great recession.
From hedge fund managers to Wall Street experts, there is a widespread belief that the economy is on the verge of collapse.
The great difference between the 2008 and 2022 crises, is the inflation rate. Inflation in the United States touched a four-decade high in February, rising by 7.9 percent year-over-year. The “Great Moderation,” a time of low and stable inflation, has come to an end with the Great Recession. Just 2.85 percent inflation was recorded in 2007 and 3.84 percent in 2008. Even if the macroeconomics became more turbulent after that, inflation remained very low. Nowadays the inflation rate is not a piece of news that is spiking and skyrocketing. The Fed’s recent move to boost interest rates in an effort to battle inflation may trigger a recession in the United States. That’s why the currency crisis may be even worse than it was 14 years ago.
The parallels between 2008 and today’s stock market are clear. Both periods experienced a tremendous increase in share prices, resulting in near-historic levels of valuations. As a result of the current overvaluation of equities, some analysts believe we’re in the midst of an “everything bubble.” This means that the stock market may see a collapse in the near future and it may lead us to another crisis. Apart from the stock market, the major instruments’ prices are significantly dropping in the Forex market as well.
How Far Could the Forex Turnover Plunge
As mentioned above, considering the current crisis, the FX market is going down and as time goes by fewer investors want to invest their money in the Forex assets. The market nowadays still remains bearish. Taking into account that the Forex market, like other financial markets, is quite volatile and unpredictable, it’s hard to say when the market will rebound and recover. Considering that the Fed in the USA is increasing interest rates in order to fight against inflation, investors fear that the process of market recovery may be prolonged.
The turnover of the Forex market is even lower than it was by the time of the Coronavirus outbreak. Nowadays analysts don’t know how far this process will continue. However, some analysts think that the current market situation may be devastating for both Forex investors and Forex companies. Even though there are some companies that went bankrupt because of the current processes, that’s not a problem for Forex brokers accepting Mpesa, as the number of people who search for mobile payment methods increases gradually even during the time of crisis. So why do some people still continue to trade in the Forex market? There are several ways, which allow investors to make money even in the process of a market crash. One of the main methods is swing trading, which allows traders to get the most out of their trading processes in a very short period of time. They can speculate on price changes. And when it comes to risk management, traders can set up stop-loss orders, which can protect investors from losing money.
The currency crisis isn’t only about the stock and Forex market. One of the main players in this process is the crypto market, which sees a dramatic decrease as time goes by.
Crypto Crash - What Does This Mean?
May was a hard month for the crypto market. At the beginning of the month, the crypto market started to crash and this process still continues. In addition to that, the most popular cryptocurrency BTC is traded at almost $22 000, nowadays. Compared to last week the price has decreased almost by 30%, which is a lot. Even though the crypto market is quite volatile and unpredictable, such drops increases the fear among the investors. In addition to that, the price drop of the BTC has a big influence on other major cryptocurrencies, as well. So, as it seems the crypto coins are struggling and the market, similar to Forex, is bearish, as well.
Finally, what the future holds for the crypto market isn’t certain. This is because of the market’s characteristics and unknown geopolitical factors that may happen in the future. However, there are some investors and analysts who say that the crypto market had some ups and downs since its inception and this crisis isn’t something new. As a result, they hope that the market will still rebound and increase in volume suddenly.