Rocks and Hard Places

It is not a secret these days that Markets are addicted to cheap Central Bank money. Any indication that rates could tighten and cheap money might become marginally more expensive has been enough to put shivers into any asset class.

This happened back in May 2021, it is now happening at an even faster rate and explains the strong downturn over the past days. As much as we would like crypto markets to be disconnected from other asset classes, time and again crypto follows the rest of the market on the ways up and down. 

If inflation continues to go up, Central Banks will feel obliged to raise rates. Yet, as the global economy continues to struggle with Covid variants and the fallouts of the past 2 pandemic years, any further bad economic news could delay tightening and allow for markets to continue ‘partying’ for just a tiny bit longer.

Ironically, it would seem that the worse the economy fares, the better markets will do as rate hike expectations would be delayed. Of course there’s always a good chance that as rates tighten, the economy will crash anyway. Central Banks really are between a rock and a hard place.

What does this mean for Crypto?

Nothing good in the short-term as we are entering choppy waters. However, for anyone fearing a 2018 style bear market, consider how much the industry has progressed since.

Will traders leave the most future-proof asset class with the highest returns entirely? Or will they sit out the storm while earning yield on Stablecoins in DeFi protocols, at any time only a few clicks away from re-entering the market?

Be careful, but do not give up hope, crypto markets are here to stay.