I was reading an article recently that was looking at the growing fear of inflation, something that around this time last year, the same media was saying, "inflation being bad is old thinking". Well, I think we are soon going to see that it might not quite be true - especially for the ordinary people who just always seem to lose out. With stagnant low interest rates for years, investors chasing yields have had to keep investing into rising prices, but with nothing to back it. That isn't sustainable.
However, during this time, the financial institutions have been able to rake in massive amounts of deposits and then loan out enormous amounts at a very low interest rate. What this means is that they have been able to clear their debts, while encouraging more people into further debt and then, as interest rates start to rise, they can reap the rewards with the debt-laden getting squeezed.
Blame Covid-19 all you want, but as you can see from the gold trends that have moved about 50% since 2018, people have been making moves to secure their gains from the disreality of the stockmarket in something tangible for a while.
But for most, they think there is no alternative to the traditional markets they know, but over the last year or two, crypto is fast gaining notoriety as an alternative, especially with the interest turning to firstly the DeFi liquidity pools and increasingly onto tokenized assets like NFTs. I think that while from within the crypto industry this is going to be the way many people look to secure some part of their bullrun gains, it is going to become more attractive for the traditional investors to turn to in order to safeguard themselves against the inflation being driven by government handouts and ludicrous amounts of debt taking by consumers.
Yes, the prices on debt have been low making it attractive to take on more, but as people have done so and the interest rates start to rise, they are going to have to also pay back more, which is adding more magical fiat into the money supply - more inflation. See how this is going to probably play out?
Purchasing power is going to be heavily eroded as the rising interest rates will take money out of the pockets of debt carriers, and the inflation of costs will mean what is left in those pockets won't be able to buy as much. However, the banks that issued the loan debt will be able to rake in increasing amounts to cover themselves and the governments who handed out all of this "free money" will be hamstrung, because they have artificially held rates so low for so long and, that is pretty much all they have at their disposal. A lot of pain is coming.
Which is great news! Well, it sucks for many of us of course, but if there was ever a time for the average persona to wake up and see how fundamentally broken the economy is, it is now. The reason is that "There Is No Alternative" is no longer true. There are alternatives, but it currently takes somewhat of a leap of faith into an industry that is still in its infancy and a change in paradigm that an economy can only be underpinned by centralized authority. It is the latter that is the largest leap for most investors, as they are accustomed to only having semi-autonomy over their holdings.
But, as we have seen over the last couple years with a few larger and more visible companies making forays into crypto and the growing hype on the returns running into a bull market, there is going to be a lot of people raising the question on what to do. Most people know there is a crash coming as that is always the way it plays, but they aren't sure where their haven is going to be this time. Stocks are overpriced, currency is getting devalued and things like gold may move rapidly up, but comes with its own problems of economic mobility.
This could be a perfect storm for the "blow-off top" that many are predicting for Bitcoin, as new investors start to pour into crypto (Bitcoin being the mane target) in the hope to either secure their funds or make some outsized gains on the hype. This could see some very aggressive upward movement in crypto, but what will be very interesting to find in the coming couple years is, where the new floor will be.
If Bitcoin hits the 100, 200, 400 marks rapidly, it will naturally suffer a massive retrace, but where will that bottom out? I suspect that if it hit 400, we might not see 25 again, as there will be so many people who have bought higher than that, that they are not going to sell and that in itself is going to create market scarcity, which should hold up the base relatively well. I also predict that if BTC did see that kind of movement, many of the largest sellers are old-timers in crypto, so they are less likely to go back out to fiat, which means an increasing amount of wealth is going to be looking to settle onto the blockchains.
Will a Bitcoin whale look to secure their wealth in Shib or Doge? Unlikely I think. I reckon they are more likely to look at NFTs, games and tokens that have usecase and usage behind them. After all, this is what they have been waiting for - crypto adoption - why lose faith now?
Of course, I don't know what is actually going to happen across all of these highly dynamic factors that are subject to all kinds of FUD and FOMO influence, but what I do believe is that while here was no alternative - now there is.
And the alternatives are looking better by the day.