The cryptocurrency industry is in trouble. Not merely FTX is to blame.
- The cryptocurrency
industry is in trouble. Not merely FTX is to blame.
- the shocking demise of FTX, one of the biggest cryptocurrency exchanges, shocked the whole industry. Sam Bankman-Fried, the 30-year-old crypto tycoon and CEO of FTX, saw billions of his fortune disappear in a bankruptcy filing that rocked the trillion-dollar sector. Investors' suffering is probably not finished yet. What's happening: According to JPMorgan analysts, bitcoin will drop by another 25% in the upcoming weeks. That's partly because of the ongoing effects of FTX as well as another issue that has already been affecting cryptocurrency: In addition to raising interest rates, the Federal Reserve has been reducing its balance sheet since June in an effort to slow the economy and fight inflation by taking money out of the financial markets. Due to these efforts, capital is drying up, which is bad for stocks as well as other asset classes, including cryptocurrency.
- The big picture:
- The value of Bitcoin, the most valuable cryptocurrency, has decreased by more than 75% to $15,984 since this time last year, making it a very difficult time for crypto investors. Thanks to the Federal Reserve monetary money policy during the pandemic, cryptocurrencies benefited from significant infusions of cash.
- The central bank kept interest rates close to zero while injecting massive amounts of cash into the balance sheets of large banks by buying bonds and other assets. That's not the situation anymore. In recent months, interest rates have increased, inflation has risen, and that money has run out. That's terrible news for digital assets, which Wall Street analysts believe to be money-sponging sponges.
- The policies of the Fed, according to JPMorgan analysts, will significantly reduce the amount of cash that is available for investment well into the following year.
- "All things considered," says JPMorgan strategist Nikolaos Pan girt zouglou, "the slowdown in global money Over the upcoming year, growth appears likely to continue, with some contraction in the US appearing likely. With less money, investors are becoming more risk-averse and pulling their money out of cryptocurrency. Solana and other digital asset platforms are currently experiencing a cash shortage.
- The spread:
- Similar issues are being experienced by other risk-sensitive industries, such as Big Tech.
- For the entire S&P 500 this year through October, declines in the information technology sector—which includes firms like Apple, Alphabet, and Microsoft—accounted for 44% of the decline.
- According to CFRA analyst David Holt, the reaction is quite understandable. He claimed that for a decade, the Federal Reserve "dropped money into the economy from a helicopter and then quickly took away the punchbowl." "That has led to the collapse of high-risk, high-growth industries like cryptocurrency. Other sectors of the economy, such as technology, are also experiencing an overhang as a result of that mentality shift. The US home market has also suffered as a result of the Fed's change in policies.
- During the epidemic, the Federal Reserve was one of the main buyers of mortgage debt. Mortgage rates considerably increased as a result of the sale of those mortgage-backed securities. The purchasing power of consumers has decreased, and they now stand at over 7%, an increase of four percentage points from a year earlier. The National Association of Realtors reports a continuous eight-month decline in sales.
- Americans are unhappy with the state of the economy.
- In November, consumers' opinions of the US economy deteriorated, according to a widely regarded University of Michigan survey that was released on Friday.
- According to my colleague Alicia Wallace, the bleak outlook is accompanied by punishing rate increases and inflation that is at a record high.
- Consumer confidence decreased to 54.7 from 59.9 in October, according to the preliminary index reading from the monthly Surveys of Consumers. According to estimates on Refinitiv, economists anticipated that sentiment levels would dip to 59.5.
- It represents the lowest reading since this summer when sentiment peaked following a record-high gas price in June.
- Why it's important In order to assess whether inflation is solidifying in the US, the Fed is closely observing changes in consumer expectations: Consumers may demand higher wages if they think prices will stay high, which could lead to price increases from businesses.
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