As in 2000, the Fed kills technology (and crypto)

The Fed appears determined to regain control of inflation. After the phase of boom of the economy comes the mechanical recession period in which all the bad investments are liquidated by the market. The reaction is immediate: NASDAQ has fallen by 30% since January and the crypto is collapsing. Are we experiencing a new internet bubble bursting?

The Fed is changing strategy

Facing one uncontrolled inflation, and especially unpopular, especially in a pre-election context, the Fed is changing course. Although the answer is still too timid to neutralize the inflationary gangrene, the Federal Reserve has raised interest rates 50 basis points. It is the largest increase after 22 years of printing money.

Markets expect inflation to disappear by itself. That is unlikely to happen, and sooner or later the Fed will have to raise interest rates significantly if it is to keep its legitimacy. Jerome Powell could well embody the role of the central banker who killed inflation. Recently, he acknowledged that the Fed needed to act aggressively, and thatthere would be nosoft landing “.

A soft landing is simply to get back to 2% inflation while keeping the labor market strong. And it’s pretty hard to get there right now»explains Jérôme Powell.

What is astonishing is that over the last 30 years, the Fed tended to lower interest rates when the stock market was under pressure. Investors had therefore become accustomed to these bailouts through freshly printed money, and the stock price was rising. Nothing seemed to be able to stop this stock market euphoria. Not even a pandemic. It therefore seems that we are changing the paradigm: The Fed is ready to raise interest rates quickly when stock markets fall.

In contrast to the crisis in 2008 and the crisis in ” dot com »Which is characterized by demand shocks that did not accelerate inflation, the current situation is deeply inflationary. Of course, money injections immediately become more problematic. The Fed currently has other concerns than the decline in the value of shareholder portfolios.

Financing crisis in technology and crypto

When real interest rates rise, investors can achieve low-risk and rewarding returns. just buy government bonds . In fact, institutions make adjustments in the allocation of their assets. The most risky investments, such as venture capital, or crypto, were necessary in a zero-rate universe.They are much less attractive with 8% rate .

“Web 3.0” bubbles, run by VC foundations like Andreessen Horowitz in 2021, could burst due to lack of liquidity. Thousands of crypto startups have received funding through buzzwords “NFT” or “blockchain”. Without a business plan (because a token is not one), these experiments will soon be overtaken by reality. The UST crash, which was predictable, also marks the end of Ponzinomicsand accelerate the cleansing of the ecosystem.

The Fed is waking up and technology is going down

The technology shares in large companies such as Zoom, Shopify, DocuSign or Coin base has been collapsing since the end of last year. This carnage is not surprising: when prices rise, the discount rate rises and valuations fall.Consumers also have less money, and companies are therefore saving fewer sales.

Medium-sized technology companies , valued at tens of thousands of billions and which do not have the resilience of either Apple or Microsoft, are the most affected by the economic winter. Many of these companies have lost 50% to 75% of their value in recent months. Any comparison with shitcoins would be random.

When interest rates rise, the illusion of prosperity disappears.The billions of dollars injected since 2008 have encouraged an increase in stock market valuations. Investors therefore expected significant sales growth. These expectations suddenly become more pessimistic to the point of taking down in the crash companies that seemed immovable as NetflixWhere Meta .

If large listed companies falter in the public markets, startups will also suffer damage, as venture capital funds rely in part on stock market valuations to value start-ups. The return to reality at the monetary level will therefore lead to funding crises for thousands of startups, especially during advanced funding rounds.

Bold and internet bubble

Economic cycles often reverse in the same way: after a period of money surplus used to accelerate a recovery, the bubbles burst. Zero interest rates lead to excessive risk-taking and exposure to increasingly expensive assets, under the artificial impression that there is no risk.

In 1999, NASDAQ was soaring, and Internet startups enjoyed ample credit. At the time, it was enough to talk about “.com” addresses to raise money (in 2021 from NFT). Investment, debt, and consumption exploded in the U.S. economy. Between September 1999 and March 2000, NASDAQ boomed by 83% in just 6 months!

During 1999, the Fed had injected enough liquidity to lower interest rates before starting one interest rate hike a year later. The economy was slipping into recession in early 2001, and in September 2002 NASDAQ hit a 5-year low with a fall of 77% compared to the peak of 2000.

Repeat again

All the basic ingredients are on the table: technological revolution, increase in the money supply, change in financial valuation targets. Technology assessments were based onan extreme bull market that lasted a decade and who turns around.

As in 2000 and in contrast to 2008, Tech companies appear to be l is most affected by the turn.

Crypto’s death?

It’s not just the big tech companies that are going through this economic winter. There is certainly no saving on crypto. Even the most capitalized cryptocurrencies like BTC or ETH are highly correlated with public stock markets. NFTs are also largely down after record highs in 2021. The example of Jack Dorsey’s tokenized tweet originally sold for almost $ 3 million, which lost 90% of its value, is very enlightening.

We need a new “Fucked Company” to identify everyone shitcoins who will go bankrupt. We could start with UST.

We are officially with large bear market. The difference compared to previous cycles is that Fed will pump much less money into the machine. The crypto market will therefore restructure around promising projects. They can be counted on the fingers of one hand. This bearish cycle may give rise to a new use of blockchain. In a few years, it will stimulate new institutional adoption, such as ICOs, DeFi and then NFTs.

Crypto is one young technology in need of a monumental cleansing in shitcoinsto extract the projects with the greatest value. Let us not forget that recessions have given rise to Amazon, Google, Salesforces, Stripe, Airbnb or even Paypal.

A Coinbase Bankruptcy?

Coinbase recently announced its financial results for the first quarter of 2022: they are particularly bad. Coinbase activity has fallen sharply and the company is taking over a net loss of $ 430 billion.The decline in transactions is likely to continuebear market.The difficulty concentrated on Tech constitutes one existential risk on Coinbase .

To make matters worse, the company said in its report that customer assets “can be treated as assets that are the subject of bankruptcy proceedings and customers can be treated as ordinary unsecured creditors“.

Not your keys, not your coins. If Coinbase went bankrupt, customers would probably not get all their investments back. First, the company would reimburse its creditors and then the customers. And then remember February 2014, when the exchange Mt. Gox declared bankrupt, with approx 850,000 bitcoins lostand thousands of damaged customers.

It would be a good idea to consider moving your funds into one hardware walletdue to the turbulence that weighs on the technology. Coinbase’s risk of bankruptcy is not to be underestimated .

Bitcoin: Fire lawsuit

Inflation not only erodes confidence in currencies, but in all financial assets. It is therefore normal that investors turn away from stocks and bonds. In the 1970s, the asset classes were the most beneficial gold and real estate.Can bitcoin be this new asset class by knowing it Gold is no longer an effective hedge against inflation ?

Let’s be honest, despite Bitcoin’s inherent qualities, the king of crypto has not yet demonstrated his resilience to inflation . Lack of education is undoubtedly the main reason, as all that is needed is enough people to believe that BTC is an inflation hedge thanks to its absolute scarcity to actually become one.

Bitcoin is increasingly correlated with technology stocks: 0.82 with Nasdaq and 0.59 with S&P 500 . A year ago, Bitcoin was negatively correlated with both stock indices. It is therefore possible that the bursting of the tech bubble will take bitcoin away, as than technology stocks without dividends»towards the abyss. The stagflation we are heading into isan acid test to find out if bitcoin has substance and if it can really compete with millennial gold.

Or maybe the ingenious generation of entrepreneurs suffering under Fed policy will realize the danger of inflation and embrace BTC …The arrival of billionaires on the protocol would be the best way for Bitcoin to finally transform the essay.

The arrival of stagflation in the West marks the end of a cycle that could last several years. Tech and crypto companies are seeing their valuations fall and will increasingly be seen as ordinary companies. Inflation is by far the most unpredictable macroeconomic factor. His return will profoundly restructure the technology industry. As a broadcast of the year 2000.

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Yanis A

Bitcoin changes everything! I come from a financial background and am passionate about everything about this technology. Every day I try to enrich my knowledge of this revolution, which will allow humanity to move forward in its conquest of freedom.

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