Fate Between the Fed, Inflation and the Market

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2022-07-29 19:06:42

Market situation

Bitcoin held at $36,000 but then suddenly dropped back to $34,000. Altcoins also fell. With this reduction in 24 hours, the reduction rate is not significant.

Within the past one month, the price of BTC has dropped 17.55%. Small altcoins fell more. It can be seen that BTC and ETH hold prices better when falling, and will rise more slowly. Altcoins will have a higher rate of growth when the market is up and also more decline when the market is down.

Ending last Friday, US stocks continued to fall. The Dow Jones Industrial Average fell 0.3%, the S&P 500 fell 0.57% and the Nasdaq fell 1.4%. Oil prices rose slightly by 2.17% to $110/barrel. Gold holds at 1882 USD/barrel.

The recent selling of BTC has mainly come from short-term investors. On-chain data shows movement of BTC stored less than 6 months in amounts over 60,000 BTC. While only about 2,000+ BTC are stored for 6 to 18 months. BTC that is stored longer has less movement.

At the same time, the amount of BTC moving mostly comes from wallets with between 100 and 1000 BTC. And wallets with less than 10 BTC move not much. This is a sign that major institutional investors in the new crypto market are worried and are selling BTC.

The relationship between the Fed, inflation and the market

The current market is still mainly affected by inflation and the Fed’s interest rate hike. Looking back at the history of inflation and interest rate decisions affecting the market for us to have a more specific picture. In the past, the US also had times when inflation was higher than it is now.

From 1973 to 1974, inflation in the US was high and peaked at more than 12%. To control inflation, the Fed started raising interest rates from 1972 (3.38%) to 13.6% in 1974.

In 1973 and 1974, US stocks fell sharply. The S&P 500 Index fell to 29.72% in 1974. With the rapid and aggressive rate hikes by the Fed, inflation began to decline in 1975 and 1976. During the same period, the S&P 500 index also fell. has grown rapidly again.

Inflation in the US continued to increase from 4.89% to 14.75% in 1980. The Fed continued to raise interest rates to control inflation. Interest rates rose to 20.61% in 1981. At this point, the S&P 500 index fell as interest rates rose.

Inflation also adjusted down rapidly to 2.58% in 1983 and down to 1.05% in 1986. The Fed cooled and gradually lowered interest rates, the US stocks started to grow for many consecutive years after that.

It can be seen that when the Fed raises interest rates, securities tend to decrease. And vice versa, when the Fed lowers interest rates, securities have the opportunity to grow or grow strongly. This is often evident when inflation is high and the Fed raises interest rates.

Interest rates or bonds are tools that the Fed often uses to manage inflation. When inflation is high, the Fed will raise interest rates or sell bonds or a combination of both to tighten cash flow. From 2020 when the covid epidemic occurred, too much money was printed to boost the economy. Up to now, inflation has increased, causing investors to worry that the FED will raise interest rates faster and more and the risk of financial crisis may occur. At the end of 2022 there will be votes for the House of Representatives and the Senate. So lawmakers will want to take control and get the economy up and running for a favorable year-end vote.

Looking at the economy’s history, the Fed will implement policies and inflation will come under control and finance will recover. With Thuan still finds that a long-term investment strategy in the crypto market is reasonable. Long-term investment needs to determine investment 3-5 years or more in advance to have investment accumulation and bring good investment results. Thuan remains firmly convinced of the long-term development of BTC and the crypto market. Continue with your regular price averaging strategy.

Investors who are new to the market or have been in the market for more than a year will worry about falling prices. However, with a new market, investors need to determine the psychology that the market will have a lot of volatility and great volatility. Therefore, depending on your investment style as well as your desires to determine whether you are suitable for long-term investment or not.

This BTC drop will not be the last. Along the way, BTC and crypto are likely to experience even more volatile moments. At these times, there will be a lot of information that predicts that BTC may fall deeply or BTC may die. Investors who have watched the market for a long time have seen this a lot.

Not only BTC and crypto fluctuate, but US stocks also have big volatility. There are stocks that can drop more than 50% in just one day. Or the big stocks of leading technology companies can also drop more than 30% in a month. The recent stock market volatility is also very volatile.

With the current anxiety, many investors want to sell assets such as bonds for cash or other better assets. The investment channels are often selected as government bonds, gold, real estate,… However, looking at the public bond prices like 7-10 year bonds of the US within the past one year continuously. reduce. Although the percentage of the bond has increased, it is inversely proportional to the selling price. At that time, the lower the price of bonds that investors sell, the lower the return on investment. This is not a good investment channel that US investors choose at the moment.

As for gold, the current gold price compared to ten years ago has not changed. Meanwhile, the dollar is increasingly depreciating, which means that investment in gold grows even lower than inflation. Real estate is now slower but prices are still good. However, when interest rate increases seep into the market over the next few months, home loan interest rates will rise. Investing in real estate will not be attractive to investors. And at this time, investment channels in gold and real estate are not assets that investors choose to push money in.

As for BTC, it is still an attractive investment channel because of its growth over the years. Looking at the long term, the main trend of BTC is a very good uptrend.

Some other information:

  • The US-based Bentley University is currently accepting cryptocurrencies for tuition payments. The university announced that it is partnering with cryptocurrency exchange Coinbase, which will act as a payment and custody service provider. Three coins accepted for payment by Bentley school are Bitcoin, Ethereum and USD Coin.

  • According to DogeDesigner, a UX/UI expert and graphic designer at the Dogecoin Foundation, millions of WordPress sites can now accept Dogecoin using the “Easy Dogecoin Gateway” WooCommerce plugin built by the Dogecoin developer. known as “Clearly360”.

  • More recently, the President of the United States announced a “whole government” approach to regulating cryptocurrencies under a comprehensive executive order. Among them is the Stablecoin Unified Secured Exchange and Reserve Transparency Act of 2022, known as the TRUST Stablecoins Act. This act forces stablecoin issuers to comply with certain rules. The bill clarifies that payment stablecoins are not securities, which is a great thing for crypto.

  • Argentine senators have approved a $45 billion bailout deal with the International Monetary Fund (IMF) to help the country avoid an impending default. However, Argentina will have to accept an IMF provision that will force the government to take a tough anti-crypto stance.

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