According to Woofun AI, Mark Zandi, chief economist at Moody's Analytics, has identified a cryptocurrency market crash as one of the most probable economic shocks over the next 12 to 18 months in his latest risk matrix.
The assessment was released two days before the Federal Reserve's October 28 interest rate decision, a time when investors are grappling with rising inflation and heightened uncertainty in financial markets.
Although Moody's (MCO.US) believes the broader economic damage from such a crash would be relatively limited and did not provide specific probability or price forecasts, high borrowing costs are seriously threatening speculative investments. A stock market decline could further depress crypto asset prices, causing leveraged investors to suffer faster asset losses.
Data compiled by Woofun AI shows that Moody's (MCO.US) identified four risks that could worsen the situation: a sell-off in artificial intelligence-related stocks, an escalation of war with Iran, turbulence in the bond market, and a policy misstep by the Federal Reserve. These consequences could be more severe than a crypto crash.
The U.S. 10-year Treasury yield recently climbed as high as 5.31% before falling back to 4.99% on Monday, signaling mounting pressure in the bond market.
Zandi warned that further monetary tightening could worsen conditions, noting that the Fed raised rates to a range of 3.75% to 4% in September while inflation remains elevated.
The CME FedWatch tool shows that traders see only a 10.5% probability of another rate hike in October. Zandi believes the Fed should not raise rates at this week's meeting.
For cryptocurrency investors, Wednesday's rate decision is crucial. Holding rates steady may bring temporary relief, but persistent inflation and possible further tightening later this year still pose a significant threat.
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