Is another global financial crash coming?

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Across the world, investors and pundits are asking the same question: Are we on the brink of another 2008-style financial crash?

One need only look at the S&P 500, the prices of stocks in top companies like Nvidia (NASDAQ: NVDA) and Tesla (NASDAQ: TSLA), or the digital currency markets to see what’s happening: a mass-scale selloff in risk assets and a rush for the exits. With United States President Donald Trump launching a diplomatic blitzkrieg in the two short months since he took power, uncertainty looms large, and fear is beginning to take hold.

With the U.S.-China trade war heating up, tariffs on trading partners, and a clear realignment of the U.S. politically, institutions and other investors are moving into cash and safe assets until the dust settles. The global economy appears to be reaching a tipping point reminiscent of the 2008 Global Financial Crisis.

What’s spooking the markets?

In one word: uncertainty. While Warren Buffet famously said it could be the friend of the buyer of long-term value, markets don’t like it in the short term, and there hasn’t been this much uncertainty in such a short period since the COVID-19 pandemic shook the world.

A few factors contribute to that uncertainty: geopolitical shifts, trade wars, and a general risk-off mentality are the main three.

Geopolitical Shifts – For the first time in history, the U.S. voted with Russia, North Korea, and Sudan in the United Nations. If there was an illusion that American priorities weren’t changing, that pretty much shattered it.

When the largest economy in the world completely changes geopolitical direction overnight, it naturally creates some jitters. Nobody knows how America will go or what it means for the global economy, so risk-off is the answer until things become clear.

Trade Wars and Tariffs – The geopolitical shifts are tied in some degree to the Trump government’s trade tariffs and the escalating trade war between the U.S. and China.

I wrote previously about how Japan signed the Plaza Accord and killed off its manufacturing competitiveness at Uncle Sam’s request, but China likely won’t do that, so an escalating trade war is the only foreseeable outcome.

Trade wars create a lot of uncertainty, but trade tariffs can be just as destructive. Twenty-five percent tariffs on Canada and Mexico effectively lay waste to the United States-Mexico-Canada Agreement (USMCA), making the goods coming from those countries more expensive.

There’s no telling whether the long-term impacts will be as desired (manufacturing jobs back to the U.S.), but they’ll hit American consumers in their pockets in the short term. Since the U.S. is the largest consumer market in the world, any slowdown in American purchasing power will be felt worldwide.

Risk-off Attitudes – While the two previous points play into the risk-off narrative taking hold on Wall Street and elsewhere, there’s a general reassessment of stocks independent of outside factors.

Companies like Tesla, Nvidia, and Palantir (NASDAQ: PLTR) traded at absurd valuations in Q4 of 2024, and it’s only natural that big investors would eventually take a step back and reevaluate. Interestingly, while gold and silver are seeing an uptick, BTC is not. So much for the safe-haven asset and digital gold narratives!

All three of these factors, as well as others, are contributing to the current selloff. But are we at a tipping point that could take things from selloff to crisis? Let’s look back at the last one.

A look back at the 2008 financial crisis

In March 2008, Bear Stearns collapsed. The U.S. government arranged a bailout, and JP Morgan (NASDAQ: JPM) stepped in to buy its shares for $2 a piece, down from $170 the previous summer.

It wasn’t enough to stop the panic. In September 2008, the U.S. government took over mortgage giants Fannie Mae and Freddie Mac. Shortly thereafter, Lehman Brothers collapsed (NASDAQ: LEHLQ), wiping out $600 billion in assets and triggering a full-blown panic. In mid-September, American International Group (NASDAQ: AIG), a global insurance and financial services firm, received an $85 billion bailout to stave off collapse. While it survived, the economic landscape was destroyed.

Despite a $700 billion bailout in early 2009 (TARP) and the Federal Reserve reducing interest rates to zero, U.S. unemployment hit 10%, millions of families lost their homes, and protests erupted across the globe from New York to London to Tokyo, Sydney, and beyond.

At the heart of this entire fiasco was one thing: lack of transparency. While excessive risk-taking, lax regulatory oversight, and outright fraud played their roles, the fundamental issue was that few saw it coming. Only Michael Burry and a few others bothered to pour through the data and do the math, and they profited handsomely from that work.

Can scalable blockchains help prevent or detect another crash?

Public blockchains have many potential use cases, but the core of all of them is real-time transparency. Every transaction on scalable blockchains like BSV is timestamped and dated; it would be incredibly difficult to commit scale on the level of 2008 if the world were run on such a ledger.

While blockchain can be used in many fields, including cybersecurity, supply chains, and communications, it can also help prevent another 2008-style crash by underpinning a new financial system. In this new apparatus, every tokenized financial asset would be traded on a tamper-proof public ledger, and data related to leverage ratios, counterparty risk, and market imbalances could be monitored and automated. With smart contracts, positions could be closed automatically when pre-defined risk metrics are breached. BlackRock (NASDAQ: BLK) already sees the potential, and it’s working toward its vision of the new financial system.

In the traditional financial system, banks obscure risk, leading to situations like the one in 2008. However, in an on-chain world, such risk would be visible, reducing systemic shocks. While decentralized finance (DeFi) and the broader digital currency industry have had their share of meltdowns, they are linked to shady, off-chain operations like FTX and the Celsius Network, which deliberately made it difficult to see what was going on inside them.

So, while human behavior ultimately caused the 2008 financial crisis, blockchain technology can help prevent the next one or at least see it coming. While regulators and auditors failed the public in the years leading up to 2008, anyone can audit data on a public blockchain. In the age of artificial intelligence (AI), monitoring and alerting those responsible could be automated, too.

So, is another crash coming?

Nobody can say for sure, but it will probably not be on the same scale as in 2008. Safeguards have been implemented to prevent the type of greed and fraud that caused a crisis of that magnitude, but it can never be ruled out. A smaller-scale crash or a long-overdue global recession may be coming, but that’s different from what happened in 2008.

The nature of Black Swan events is that few see them coming, and with record sovereign and corporate debt levels, a tech bubble akin to the early 2000s, and massive geopolitical uncertainty none of us have seen in our lifetimes, there’s no telling what dominos may fall and what the consequences may be.

In any case, we’d all be better off if the data required to determine this was visible on a public blockchain. Thankfully, scalable public blockchains like BSV exist, and we can build a better financial system on top of them so that nothing like the 2008 financial crisis ever blindsides the world again.

Is there a better blockchain use case than that? If so, this author would like to hear it!

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