A BRIEF INTRODUCTION
Except for an individual is living on a mountain top, there's no need telling such an individual that we are in a bear market, as far the crypto space is concerned. Almost all indices and economic indicators shows that we are in a bear market.
The current prices of most of the cryptol assets in the market can testify to this claim. That being said, how can we know when will the bear market be over? What are the indicators we should look at for?
Without any doubt, it is clear that the cause of the bear market is attributable to macroeconomic factors.
A BRIEF OVERVIEW OF THE MACROECONOMIC INDICATORS AND HOW IT HAS AFFECTED THE CRYPTO MARKET
Macroeconomics indicators such as high inflation, international conflicts, unemployment, high interest rate ,supply chain problems and the likes can have negative impact on the financial and the investment space, especially the crypto investment industry which is claimed to be more volatile.
A brief research shows that the current bear market is caused by various macroeconomic indicators, especially the high interest rate announced by the Federal reserve and the supply chain problems caused by the war in Ukraine, coupled with the lockdown in countries like China.
Some of the above macroeconomic indicators has lead to high inflation. Every reasonable government are adverse to hyperinflation and they will do everything to curb it. Hence the US Federal reserve has decided to increase interest rates in order to curtail the present hyperinflation in U.S .
It is worthy of note that high interest rates make it difficult for investors to borrow to invest, which reduces liquidity in the economy, which ultimately reduces productivity, employment and per capita income of both established and prospective investors.
Also institutions and corporate organisations will not want to borrow at such astronomical cost to invest in volatile assets. Not many businesses will want to borrow at such a high cost that can affect their profitability negatively.
THERE IS A BIG CORRELATION BETWEEN UPCOMING FED,S ANNOUNCEMENTS AND THE FUTURE PRICES OF CRYPTO ASSETS
By Federal reserve standard, ideal inflation rate should be 2%. Thus the Federal reserve under Mr Jerome Powell is doing everything possible to hunt down the rate of inflation by increasing interest rate. More also, now that the midterm elections are around the corner, the government will do everything to reduce inflation rate, by increasing interest rates, thereby mopping up more liquidity from the economy.
The next meeting of the Federal reserve will take place on 14th and 15th of June 2022, while the announcement of the outcome will take place on 6 of July 2022. The outcome of the meeting will dictate to an extent the direction, the prices of crypto assets will chart.
The fed uses two major metrics to measure inflation, one is the consumption price index (CPI ) and the other, the personal consumption expediture price index ( PCE). The Fed is bias in favour of the PCE, while the investing public are influenced more by the CPI. The next PCE will be released by fed on 30th June 2022. The figures that will be released will affect the investment decisions by numerous investors and prices of assets in the crypto and other spaces. Which side will the pendulum swing to ? only time will tell.
CAN FED SUCCEED TO CURTAIL INFLATION? CONSIDERING THE PREVAILING GLOBAL ECONOMIC EVENTS?
Factors outside the control of the Fed such as the
Lockdown in China and Russia stopping supply of energy to the west and also preventing Ukraine from supplying food to the rest of the world, are some of other major factors that need to be considered that will definitely affect supply chain and trigger considerable inflation globally.
WHAT IS IN STAKE FOR THE CRYPTO INDUSTRY?
Definitely the macroeconomic indicators which works in tandem with economic growth and developmentt, hold the key to economic recovery which is tied to crypto assets' prices recovery.
.In a nutshell we should expect crypto assets prices recovery when we begin to see macroeconomic indicators turning green.
Solution, Keep tab on the macroeconomic news closely, to forcast correctly the future prices of crypto assets.
PUT YOUR GAZE ON TECHNOLOGY STOCKS
The prices of technology stocks and cryptocurrencies are highly correlated, especially Bitcoin.
Paying a close look at the equity market, bitcoin has greatly tracked the prices of tech stocks such as Apple, Amazon, Microsoft etc, So let us be paying close attention to the prices of tech stocks, because the movement of technology stocks prices affect the prices of cryptocurrencies greatly, especially Bitcoin. So when technology stock prices begin to rally, let's expect the prices of cryptocurrencies to also rally.
THE EFFECTS OF THE REGULATORY AUTHORITIES ON CRYPTOCURRENCY PRICES
Mainstream adoption of cryptocurrency has great influence over their prices. And mainstream adoption could not be possible without the cooperation and the support of regulatory authorities. Favourable regulation of the crypto space and its acceptance by the regulatory authorities will affect the future prices of cryptocurrencies a great deal. Emphatically, standard regulation is key to the mainstream adoption of cryptocurrency. As such, this will positively affect crypto prices in the long run. Fortunately, there's a crypto bill before the US regulators which is praised by many stakeholders in the crypto industry. See its overview here. This bill will definitely lay a solid foundation for the mainstream adoption of the crypto industry.
SUMMARY
The crypto market reacts to the performance of the macroeconomic indicators and their general outlooks.
The fed and other central banks of other developed nations of the world will do everything to curtail inflation by hiking interest rates which in turn deters borrowing and reduces investment. This reduces liquidity in the economy and leaves many supposed investors with little investable funds. The result will be, that there will be not much funds to push the prices of assets higher. Also, some investors will choose to liquidate their investment in crypto assets and move to less volatile assets.
Another factor is that the lockdown in China has and will greatly affect the world supply chain negatively which will impact negatively the economic well-being of prospective investors.
The Russia/Ukraine war is another major culprit that is disrupting the supply chain greatly, which will mean an adverse economy for many nations of the world, which will trickle down to the economy of their respective investors.
The prices of tech stocks correlating with crypto prices should also be our gaze. Tech stock prices will always influence the prices of crypto assets.
The activities of regulators will also have great influence over the prices of crypto in the near future. Thus enacting suitable regulatory frameworks for the crypto industry by the regulators will go a long way in affecting its adoption and its prices in the long run.
Conclusively, it is for every prospective or current investor to keep a tab on the macroeconomic news closely, especially as regards the crypto space.
OVER TO YOU
I may not have touched what you think is the major cause of the the crypto bear market. Are you satisfied with my analogy? Do you have a better argument? Let me hear from you in the comment section below.
