Does Elon Musk’s Economic Warning Spell More Trouble For Crypto?

Tesla CEO Elon Musk expects more economic trouble in the coming months, likely pointing to a negative trend for crypto markets.

Musk said he has a “super bad feeling” about the economy in an internal mail sent to executives, as reported by Reuters. Musk also plans to cut Tesla’s workforce by 10%.

The car maker has nearly 100,000 employees as of end-2021, according to an SEC filing. A 10% cut would entail at least 10,000 redundancies.

But the Tesla CEO’s economic prediction may spell more trouble for markets. While crypto markets were somewhat steady, U.S. stock futures fell further into negative territory.

Economic environment set to get worse?

A dour forecast from the world’s richest man comes amid already ongoing economic strife. U.S. inflation hit an over 40-year high this year, and is expected to stay elevated for the medium-term.

Musk had last year said he expects a recession by spring or summer 2022. He recently also said a recession may not be as bad as initially perceived, chiding the loose monetary policy seen over the past two years.

It has been raining money on fools for too long. Some bankruptcies need to happen.

-Musk

Rising inflation has invited monetary policy tightening by the Federal Reserve- a move that is unconducive for risk-driven markets like crypto. The Fed recently began reducing its balance sheet, which caused a small crash in crypto markets.

With rising inflation and higher lending rates, retail investors- a main driver of crypto markets- will have lesser funds to be able to invest in crypto.

How vulnerable is crypto to a recession?

With data recently showing that the U.S. economy contracted in the first quarter, the crypto market may be set to experience its first major recession.

Given its close relation to the stock market, further weakness in prices may be likely for crypto. The market has already responded poorly to economic ructions this year. Majors Bitcoin and Ethereum are both trading more than 50% below their record highs.

A bulk of crypto’s rally through 2020 and 2021 was driven by loose monetary policy, which has now come to an end.