Fed Rate Hike: How Does It Affect Crypto Market Gains, Losses and Bull/Bear Transitions?
Fed Rate Hike: How Does It Affect Crypto Market Gains, Losses and Bull/Bear Transitions?
The crypto market has been falling for 4 months since the Fed let out the wind to raise interest rates last November. And in about 4 days (March 15/16 EST), the second Fed meeting in 2022 will be held, and this meeting is widely expected by the market to land a rate hike, in this context, the crypto market continues to go lower.
It can be said that at this stage, with the "mainstreaming" of bitcoin and "US stockization", the changes in the Fed's monetary policy have an increasing impact on the rise and fall of bitcoin and the crypto market, and even determine the bull and bear pattern of bitcoin to a large extent. So, in 2022, how will the general environment that the Fed will start to raise interest rates affect the ups and downs of the crypto market and the bull and bear conversion? What will be the impact on the general economic environment of the world after the rate hike opens and how will it feed back to the crypto market?
The interest rate hike cycle will be opened and
What will happen to the overall economic climate?
In 2022, when the Fed's rate hike is a foregone conclusion, the most important question now is: What will be the impact of the Fed once it starts its rate hike cycle? In particular, what impact will it have on the general economic environment? After all, economic fundamentals determine everything.
To answer this question, we first need to understand what is the nature of the Fed's rate hike? This question is answered in our original article: "Fed Rate Hike (II): What is the nature of the rate hike? (available in OEE APP - [News] - [Daily News]): The essence of the interest rate hike is to develop the U.S. economy through the adjustment of monetary policy for the U.S. internally, while it will objectively evolve into the financial harvesting of other countries/regions and a certain industry for the U.S. externally, and these two results are complementary and mutually beneficial.
In order to achieve the above result, the Fed will take a series of measures after the rate hike or even before the rate hike, using the status of the United States as the only superpower in the international arena. These measures will cause some obvious changes in the overall economic environment of the world, specifically three changes: the accelerated return of global capital to the United States, the world entering an era of high inflation, and the possibility of more black swan events such as the Russia-Ukraine conflict. These three changes in the general economic environment may have a significant impact on the crypto market, even the impact of "no egg under the nest".
Change 1: Global capital begins to accelerate back to the United States. At the beginning of the Fed's interest rate hike, this will be a very important phenomenon, and a threat to the whole world. Because the U.S. interest rate increases, capital will flow to places with high interest rates in order to profit, this time, in order to avoid a significant outflow of international capital, most countries will follow the U.S. together, synchronized interest rate increases, in order to maintain the spread between their currencies and the U.S. dollar remains unchanged, the international capital outflow is a little less motivated.
But the level of development of each country is not the same, following the Fed to raise interest rates may appear the development of the real economy out of food, or squeeze their own country's asset bubble. If you do not follow the interest rate hike, there may be capital outflows, currency devaluation, the consequences are more serious. Even if the lesser of two evils, choose to follow the Fed rate hikes, but you do not know how much the Fed will raise interest rates to what kind of rhythm to raise interest rates, it is possible that not long with the own economy with the collapse.
Change 2: A big increase in the level of world inflation, especially pushing up inflation in other regions, has created a value depression in the United States. The core element is the issue of rising energy and food prices. In Europe, for example, recent sanctions on Russian oil and gas have sent oil prices soaring, with U.S. WTI crude oil futures prices once topping $130 per barrel, and the market even predicting that the next sanctions could send international oil prices soaring to $200 per barrel. Together with the previous sanctions against Nord Stream II, a series of operations have managed to pull up the inflation level in Europe rapidly, and the water released in Europe during the epidemic is not less than that in the United States.
The U.S. pushed up the level of inflation around the world in order to make the U.S. real interest rate, in the first half of the rate hike cycle, higher than other major economies, so as to widen the spread and increase the attractiveness to capital. And the so-called real interest rate is almost the nominal interest rate + economic growth rate - inflation rate.
The U.S., as the world's largest food exporter, firmly controls the pricing power of international food prices, and if the purpose cannot be achieved through energy operations, the operation of food prices will be the killer app for the finale.
Change 3: The probability of a black swan event of regional conflict or unrest has greatly increased. If the initial interest rate hike, many countries resist the pressure, the speed and scale of capital flow back to the United States is less than expected, then this is the time for the United States to use their superpower capabilities to create unrest in other regions to intimidate capital so that it has to flow to the United States.
For example, the current Russia-Ukraine conflict is the result of the U.S. constantly arching fire, the discerning people know that the real purpose of the Russia-Ukraine conflict is not the two sides of Russia and Ukraine, but the entire eurozone, as the world's third largest economic entity, the European Union, and the second largest international currency, the euro, this volume to let the United States eat. Of course, the United States will not just put eggs in a basket, as one of the three poles of the world economy, East Asia, Southeast Asia may also be one of the targets, which will make the world economy and the probability of a black swan event in the crypto market much higher.
It can be said that the Fed's big release of water due to the epidemic, although temporarily stabilized the pace of economic recession, but also prompted the crypto market, including many markets "thriving", but now has come to the time to raise fish to collect the net, the Fed printed out of thin air money needs to have real assets to do support, otherwise the collapse is the United States own economy The opening of the interest rate hike cycle, in the final analysis, or let the global capital flow back to the United States, for the printed dollar to do support, which will drain other countries and regions as well as the market water, other markets of quality assets are plummeting, Wall Street's capital and then global strike, plagiarism global assets, to complete the transformation from virtual to real.
Although the U.S. set-up is known to the discerning eye, but time and again to make its set-up successful, because the global and even the internal of each country is not a piece of iron, coupled with the U.S. superpower strength of political infiltration and capital kidnapping, even if you know the set-up can not do anything, after all, the internal disunity and strength is not good.
The U.S. restarted the interest rate hike, which is a core event, and as a country where capital is paramount, it is fighting for the core interests of the U.S. So don't underestimate the determination and all-out ruthlessness of the U.S. in fighting for it.
Under the nest.
How does it affect the ups and downs of the crypto market and bull and bear transitions?
Since last November, when the Federal Reserve clearly wanted to start tapering and raising interest rates, the whole crypto market has been in a downward mode, and as of this writing (March 10, 2022), Bitcoin has dropped 42.99% and ETH has dropped 46.69% from its historical high. Even the public chain projects, which are the infrastructure of the whole industry and previously the brightest performers, are generally down 50-70%, while some "old mainstream coins", such as BCH and LTC, are down 80-90%.
From the above data, we can see the level of panic in the crypto market about the Fed's rate hike. To sum up, the impact of the Fed rate hike on the crypto market's ups and downs and bull and bear conversions will be reflected in three main aspects: the short-term or long-term liquidity crisis caused by the return of capital to the U.S., the impact on market sentiment, and the drastic price fluctuations caused by black swan events.
Causing a short-term or long-term liquidity crisis is the most fundamental impact of a U.S. rate hike on crypto market ups and downs and bull and bear transitions. As mentioned above, the Fed's rate hike will use various means to prompt global capital to flow back to the U.S. Most of these returned capital will flow into the U.S. bond and U.S. stock markets. Because in the global tightening, the situation of increased risk, the primary consideration of capital is two points, one is the safety, one is the rate of return. The U.S. bond and stock markets are the only two options that can take into account both safety and yield, historically and realistically.
Although the U.S. stocks and U.S. bonds are now at high levels, go in and may take over, but this is a world than sucks, other markets may simply collapse if they fall up, capital can only choose in contrast. And for investors, U.S. stocks are related to the national fortunes of the United States, they are in it, of course, will not think that the United States will have any big problems, will think that at least the United States as the world's first power, even if the world collapses it is the last, which is the biggest misunderstanding arising from the different perspectives of everyone.
If the Fed raises interest rates, global capital will accelerate back to the U.S., and with the volume of U.S. debt and U.S. stocks, it will gradually suck the capital flow from other markets dry. In terms of volume, the U.S. debt is now $30 trillion, while the U.S. stock is up to more than $50 trillion, and the total market capitalization of the crypto market peaked at the end of last year to $3 trillion, which is not in a tier at all. Now that the Federal Reserve has not even raised interest rates, the crypto market is left with only $1.74 trillion, which is $1.26 trillion, nearly half of the market value has disappeared. For any investment market, the loss of capital flow is a disaster, and the crypto market is no exception.
After the subsequent Fed rate hike lands and even starts tapering, then global capital will accelerate back to the market, and the crypto market, as a small pool next to the sea, may be sucked dry quickly, unless the development speed and quality of the crypto market is hard enough to form a small but beautiful self-loop, and the bubble has been squeezed beyond squeezing, but even then, the vitality will be greatly injured.
The expectation of a Fed rate hike will start to cause risk aversion across the market. This will not only make a large number of investors become cautious or even exit the market, but will also lead to an increasing fragmentation in the crypto market: assets with larger value consensus such as Bitcoin, ETH and some projects with real ecology and application landing may attract most of the funds in the crypto market, thus maintaining relative strength or even taking advantage of the rate hike gap to rise in a wave.
Most of the growth-oriented projects that may have value in the future may start to fall after losing the nourishment of capital; other projects that have no marketability and users at all, collapse will be the final result. Now the market divergence has actually begun, and the effect is already very obvious, from the above "from the historical high of the decline" can already see the end.
The market's survival of the fittest is relentless, and the projects that can withstand the market's impact and traverse the bulls and bears are the ones qualified to survive and usher in a glorious future. From this perspective, the big reshuffle in the crypto market caused by the Fed's current rate hike cycle may be an opportunity for investors to let us know which projects are really valuable, after all, the tide has gone out to know who is swimming naked.
Drastic price fluctuations caused by Black Swan events will be something that will inevitably happen in the crypto market during the Fed's rate hike cycle, and the frequency of occurrence will probably be high, just like the big ups and downs caused by the Russia-Ukraine conflict this time.
In addition to the U.S. artificially creating conflicts around the world, making capital lose its sense of security and return to the U.S., leading to black swan events rippling through the crypto market. The opening of the Fed's interest rate hike cycle will also trigger internal conflicts in many countries/regions and markets, resulting in self-exploding black swan events, as caused by the Fed's interest rate hike in history: the global financial crisis in 2008, the tech internet bubble at the beginning of this century, and the Southeast Asian financial crisis in the last century.
Of course the impact of these black swan events on the crypto market is not all negative, such as the massive devaluation of the Turkish lira and the Cyprus crisis that has caused some people to turn to digital assets like bitcoin. But the spike and plunge caused by a black swan event can catch many investors off guard and cause their assets to be damaged or even go to zero.
From a philosophical point of view, the internal cause is the fundamental cause of the development of things, the external cause is acting through the internal cause. The bubble that can be burst by the Fed's interest rate hike is certainly a problem in its own development, especially during the epidemic's big release, where the bubble is created by unlimited hyping, the greatest risk.
The crypto market is to some extent in line with the above. In this big release, the crypto market is growing rapidly and looks prosperous, but bubbles are also being spawned in large numbers, and these bubbles are bound to burst when the Fed starts raising interest rates, although the bursting of the bubbles may not be a good thing from a long-term perspective.
It is just a matter of time before time gives results on whether digital assets, as mirror images of real assets, will collapse along with the real world if it collapses, or whether they will become a place of escape for some real assets.
Finally, the world is now facing the "unprecedented changes", whether it is the profound adjustment of the current international pattern and international system, the profound change of the global governance system, or the exhaustion of the "old" technological dividend and the gradual emergence of new technologies, the world economy's The contradictions caused by the overall stagnation and slowdown will gradually emerge in the coming time.
Crypto market as a leaf in the sea, we as a drop of water falling on this leaf, there is no other choice but to open our arms to embrace the change and embrace the storm, because retreat never ushers in a bright future.
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