Sunday 19 June 2022
We know that the crypto market has had a very severe crash this year, especially in bitcoin which has fallen 49% since the start of the year or maybe now more. And the American stock index also fell 21% percent, even NFT, which was once reported to be a new digital asset, is now starting to be abandoned. So when will all this bad news end? or is this the end of everything?
It seems that this year is not an easy year for our investment, it's better if we are more careful with our chosen assets until 2023 later. Indeed, the decline in assets with high risk is a good opportunity for us to enter, but we must also be vigilant and selective. That's because every crisis there are always new rich people, but also new poor people.
In times like this we can see which assets or companies will survive, because of good fundamentals or go bankrupt because they only rely on people's folly. So the biggest question to this day within us is, when will all this end, when will this crash end, when will bitcoin hit the old-time hight again.
And all these questions depend on one thing, namely the interest rate of the fed and this is probably the best time to study the effects of the macro economy on investment assets. This is very important because this will definitely happen again in the future. So for novice investors, be sure to learn this when our capital is still small, because if this happens again the damage effect will not be too severe.
The effects of the war between Russia and Ukraine caused inflation around the world to be too high, especially in America and even this is the highest inflation in the last 40 years. In January 2022, 7.5% of commodity prices all rose in the US and an increase in interest rates is always not good for high-risk investment assets.
If you recap from the beginning, it all started with covid 19, at that time everyone was forced to stay at home, everything became difficult because all activities stopped. In order to revive the economy and prevent unemployment, the government from all over the country has issued various policies, one of which is giving cash to the people.
Interest rates are also lowered to very low so that people are not interested in putting their money in the bank. Finally people start investing to get a higher return. As a result of crypto and bitcoin prices, stock prices both in the US and other countries are all to the moon.
But what drove all the increases was the dumb money. After bitcoin touched $60,000, tesla $1,000 and many other assets to the moon, a lot of new rich people appeared who might be smart or maybe dumb.
They are added by ordinary people who want to spend like they used to, which eventually pushes up the inflation of goods. But at the same time, the supply side that produces goods has not returned to normal capacity and many sellers have gone bankrupt during the pandemic.
In addition, there was the war between Russia and Ukraine, China's relockdown which disrupted the supply of coal, oil, gas, wheat and food. So that the price of commodities rises and automatically the prices of finished materials will rise too, if the price of goods rises, inflation will automatically occur.
Yes, sometimes inflation is needed because it indicates the economy and purchasing power is growing, but this year, especially in America, it is already very unnatural. All basic necessities there went up and the US central bank government had to immediately reduce inflation and one way was
From the explanation above, I hope you understand the chronology of the origins of the phenomena that have occurred so far.
Maybe there are still people who are confused about why interest rates can go up but crash. For inflation that is already too high, the central bank must raise interest rates, so that money can enter the bank again.
We take for example if the deposit interest is 2% per year, it is not attractive, we are looking for other alternatives such as bonds, mutual funds, stocks or even crypto.
But when deposit rates rise by 8% (for example), surely many of us will think of just putting money in the bank, because it is safer there and the interest is decent. This is what makes stocks, crypto and NFT go down because the money goes back to safer assets and the returns are decent now.
So this is why we often call it, easy money era is over. Because to get money, the point is interest rates at the bank, if interest rates go up and we will borrow money, it means the interest on loans is more expensive. So after knowing the source of the problem, we understand the solution.
So this crash will end, when the FED interest rates stop rising and the FED interest rates stop rising when inflation levels return to normal.
If we look at the history of normal inflation, it is around 1-2% per year, compared to the current 8% per year.
If someone asks why inflation and American interest rates are the point, it's because 60-70% of world trade uses US dollars. And whatever happens in the US will certainly be followed by other countries. And the problem now is that inflation is still very high and there is no sign that it will go down, therefore interest rates will continue to increase gradually until 2023/2024.
The world economy estimates that interest rates will reach 2.5% in the long term, while now we are still in the middle of 2022 at least there is still 1 year left until interest rates stop rising. But no one knows what will happen tomorrow, we can only predict from existing data and signals.
So to find out that this crash will end, we have to check inflation data and US interest rates every month. You can check on the website, Trending Ekonomics.