The unthinkable just happened when the US Central Bank pulled the trigger on a 75-basis point rate rise which highlights the severity of broad financial trouble at the macro level.
This also underscores the need to sell Bitcoin to pay the bills for the median Bitcoin holder whether it be to keep the lights on, fill up the tank, or go to the grocery store.
These issues can’t be downplayed and dismissed anymore as even rich people are suffering from sticker shock as well.
One might believe that the 1,000 plus professional Ivy-league trained economists employed by the Fed might waltz into a supermarket to check out the prices.
Apparently not and what we have is an echo chamber which the group has firmly enshrined as the go-to strategy for our federal bankers.
Unfortunately, the insane price hike we are seeing is really killing cryptocurrencies’ mojo and that is terrible news for this cryptocurrency newsletter.
Crypto prices go up when there is an excess level of capital sloshing around the system due to bursts of overload liquidity like what we saw with fiscal stimulus measures enacted for a once-in-a-century arbitrary lockdown-society situation.
Now that the Federal government is taking away the punch bowl, extreme volatility in the stock market and crypto markets is rearing its ugly head and it doesn’t look pretty.
Sadly, the situation for crypto will get worse.
As the looming recession is brought forward by aggressive rate hikes, it means crypto holders will lose their day job, triggering yet another wave of mass crypto selling.
If they own a house, they will sell it because they won’t be able to afford the mortgage payments without a job.
Even if they are lucky enough to rent out their house, then finding their own place to rent will be impossible.
Rents are primed to explode higher as former homeowners turn into a wave of new renters fighting for the little supply on the market.
This means they will be paying more for shelter in a recession relative to their payments on their old mortgage before the recession.
This doesn’t seem like a great model for ensuring your customers have money to throw at crypto.
Also, these workers who lose their jobs won’t be able to find a new one right away if we are in a deep recession triggered by large rate hikes.
Companies don’t hire in deep recessions because they cut costs.
Making matters worse is that the entire crypto ecosphere is illiquid right now because of systemic risk brought about by panic liquidation from institutions.
The loss of confidence has infiltrated every corner of the crypto industry.
One must be insane to put new money to work which will result in zero dip buyers.
Good luck getting any real spendable dollars out of this mess.
The only ones that will end up net positive are the investors who got in SUPER early, and I mean really early like Bitcoin at 40 cents.
These fortunes earned in crypto can handle a downdraft like this or they have already cashed out long before to ride into the sunset on their horse.
If systemic risk starts to ramp up to unbearable levels, then stakeholders will be forced to beg the government to regulate it to prevent it from happening again - it will be replaced by a central bank digital currency (CBDC), the wildcat banking era of internet money will be effectively over.
The silver lining in the technology is solid.
However, this inflation problem really killed the crypto bubble for those who aren’t rich, and there lies the problem.
It’s never a positive result to bankrupt most of one’s customers whether it be from lower crypto prices, lower stock prices, or a cost-of-living crisis.
Crypto will need to reinvent itself for the next iteration if it plans to go on another epic bull run like we saw in 2021.
