🌎 Crypto Markets Surge But Experts Warn of Crash

Crypto and Stock Markets Surge, But Experts Warn of Potential Crash

This year has seen significant growth in both cryptocurrency and stock prices, driven by strong earnings and central banks lowering interest rates. Bitcoin reached a record high of nearly $105,000, while the total cryptocurrency market cap increased by 120%. U.S. stock indices like the Nasdaq 100, Dow Jones, and S&P 500 have also risen by over 20%.

Analysts are optimistic about continued growth in these assets. Some predictions include:

Oppenheimer predicts the S&P 500 to rise from its current level of around 6,070 to 7,100, citing robust fundamentals.
Matt Hougan, Chief Investment Officer at Bitwise, estimates that Bitcoin price could eventually reach $3 million, driven by corporate and government adoption of Bitcoin as a reserve asset.

Caution Ahead: Potential Catalyst for a Crash

Mark Zandi, Chief Economist at Moody’s, cautioned that both stocks and crypto are significantly overvalued. He attributes their current stability to the absence of a major bearish catalyst.

“I’ve argued that most asset markets appear overvalued, bordering on frothy. Stocks, corporate bonds, single family housing, crypto and gold, quickly come to mind. But what could be the catalyst for them to selloff? How about a meaningful correction in the Treasury bond market.”

Zandi believes that the catalyst will come from the Treasuries market, which has expanded dramatically in the past few years. In the U.S., public debt has jumped to over $36.2 trillion and is growing by $1 trillion every four months.

Potential Consequences of a Treasury Bond Market Correction

Zandi expects the bond market to become highly volatile in 2025 as the Federal Reserve exits quantitative tightening. At the same time, China is no longer buying U.S. bonds, while Japan is starting to reduce its purchases.

As a result, Zandi expects:

Hedge funds that are buying these bonds to exit en masse when signs of problems emerge.
U.S. deficits to keep rising.
Bond yields to soar, leading to a rotation from overvalued assets like stocks and crypto.

Historical Precedent

Recent history shows that cryptocurrencies and stocks often drop when bond yields are rising. A good example is what happened in 2022 when the 10-year bond yield jumped from 1.33% to 4.3% as the Fed hiked rates to combat elevated inflation.

This led to: