THE last week has seen an almighty crash, not only in the crypto markets but in the worldwide TradFi markets.
The proximate causes would appear to be twofold. Firstly, the FED didn’t lower rates. To be fair they never said they would, and in my view the markets got ahead of themselves.
I’ve repeatedly said inflation is not yet beaten. Everyone has forgotten what Paul Volcker did all those years ago when he strangled inflation to such an extent that we have benefitted for nearly 40 years. Powell I think wishes to emulate him. And actually, leaving aside how politicians like inflation because it reduces what they have to pay back, I agree with the sentiment.
Of course, everyone also forgot that if you print money you get inflation (good economics that), and they busily said it was a blip. Complete nonsense of course.
The second thing that happened was the US employment figures were nearly 40% worse than anticipated. Now it can be argued that Hurricane Beryl had something to do with it. But the liquidity cycle is ending. And a recession follows that as sure as night follows day. So investors have rightly cashed out. I’m no great advocate of deposit accounts but now might be the time. If recession does turn up then inflation will definitely be dead and deflation may again become a “thing”.
What of crypto markets? As a whole, it is down 25%. Bitcoin from top to bottom fell over 32%, yet managed to increase its dominance by a couple of percentage points. It has clawed back to a mere 20% fall – which shows its power. Ethereum is still more than 25% down. Swathes of other cryptos are 30/40/50% down. Daily trade has risen to more than four times what it is usually. People have been panic selling.
All that said, it wouldn’t take much to turn it around. The sums required to drive it back up are much lower than previously. The sums being turned over are of course both buyers and sellers, so there are still buyers out there. There will have been huge losses. I can’t tell you that there are profits to be made now. But if I had a crystal ball I would be looking into it very carefully.
Oh, but as I continually say, Bitcoin in particular will always surprise. So just maybe the present small rise is a dead cat bounce. In which case we will all get another kicking.