Recession? It's possible, and crypto companies should be nervous

Recession: a scary word, but one that has crept into conversations I've had with market observers over the last few weeks.

Yes, a widespread decline in the global economy is becoming more of a possibility as uncertainty and fear around coronavirus or Covid-19 continue to grip markets. We are already witnessing the virus's impact on various sectors of the economy ranging from the service sector to airlines to energy.

Guggenheim Partners co-founder Scott Minerd took an even stronger stance on Tuesday, saying that a global recession is inevitable. 

While I'm not in the business of market prognosticating, I can say that the arguments for why a recession could happen make sense. The energy sector is depressed — one of the biggest sectors of the economy. And if we continue to see the canceling of conferences and folks staying home, it's easy to see the downstream impact on hotels, diners, and even crypto events here in New York.

"Absolutely, there are more people talking about fear of recession," JJ Kinahan, chief market strategist at TD Ameritrade, noted in a recent phone call. 

Tom Lee, founder of Fundstrat, said the markets have priced in a recession, with the S&P 500 already falling 20% from its all-time highs. 

"Will pandemic + oil collapse create a recession?" he said in an email. "If policy makers don’t act quickly, the drop in confidence could lead to one."

The response of policymakers will be key, in Lee's view. If the Trump administration can get out a stimulus package quickly, it could get us over "a potential rough patch." On Tuesday, President Donald Trump began negotiations on an emergency relief package (after weeks of downplaying the virus' threat). 

China offers signs of hope, too. There, factories are coming back online and stocks have pared losses with a nice, V-shaped recovery. Here's a chart of the Shanghai Composite, which tracks Chinese listed companies:

Whether current market conditions manifest into a full-blown recession or just a speed bump, there is no doubt it will have an impact on companies and startups – not to mention the crypto companies who are looking to raise money in today's environment.

Sources across Wall Street tell me that dealmaking has essentially been put on ice. A source at the New York Stock Exchange told me there is "a very strong chill in the air" when it comes to initial public offerings. Another source at JPMorgan said M&A is less clear, adding "CEOs are wondering if they should press pause ... IPOs have already stopped completely." Fundraising in this environment could be difficult as well. 

Research from The Block's Ryan Todd shows venture funding into crypto and blockchain verticals is on pace to be down 40% from Q1 2019.

So if you're a BlockFi (which closed a $30 raise million in February) or a Figure (which finished its $103 million raise at the end of last year), congrats. 

But if you're Tagomi, which four sources have confirmed is in the process of raising funds, or any other firm looking to raise funds, I'd be a little more nervous. 

This post has been updated to include the correct number of funds Figure raised in December.