Moody's Analytics has ranked a cryptocurrency market crash among the most likely economic shocks expected over the next 12 to 18 months, according to a risk assessment shared Monday by chief economist Mark Zandi.
The warning emerges as the Federal Reserve prepares for its October 28 interest rate decision, with investors navigating uncertainty around inflation and market stability.
Moody's Assessment Framework
Moody's Analytics, the economic research division of Moody's, conducted its analysis using economic data, forecasting models, and expert analysis. The firm's latest risk matrix compares 27 potential economic shocks by their likelihood and potential impact.
A crypto market crash ranks near the top of the probability scale in the matrix, though Moody's considers its likely damage to the wider economy relatively limited. The assessment provides no specific crash probability or price forecast.
Market Pressures on Crypto Assets
High borrowing costs continue to threaten speculative investments. A deeper stock market selloff could further pressure cryptocurrency prices, while leveraged positions risk accelerating losses through forced liquidations.
Four Greater Threats Identified
Moody's identified four risks with potentially greater economic consequences than a crypto crash:
- An artificial intelligence stock selloff
- An escalating Iran conflict
- Bond market turmoil
- Federal Reserve policy mistakes
Bond markets are already showing strain, with the US 10-year Treasury yield reaching 5.31% before retreating to around 4.99% on Monday. Zandi indicated that further monetary tightening could worsen these conditions.
Federal Reserve Policy
The Fed raised rates in September to a range of 3.75% to 4%, as inflation remains elevated. Traders currently assign a 10.5% probability to another rate increase at this week's Fed meeting, according to CME FedWatch data.
For crypto investors, the Fed's decision offers a potential turning point. Holding rates could provide temporary relief, though persistent inflation and the possibility of further tightening later this year remain significant risks.
