US Inflation 40yr high, Crypto demand increases
The US FED pushes prices up
US inflation hits 7.9% 40-year high. Since November 2021 when the Fed took a sharp hawkish turn regarding interest rate hikes in 2022, the US Dollar has gained strength, growth stocks’ have seen corrections and commodity/energy prices have continued to surge in value. An example being Gold that rallied to an 18-month high of $1,974 last week.
Orignal chart here
EM currencies drop in value
When a dominant country like the U.S. signals rate hikes, emerging markets experience capital outflows as though they have higher rates, they also have have significantly smaller economies. This exerts downward pressure on the EM currencies and pushes the dollar even higher.
EM investors look to Crypto
Emerging market investors might be more inclined to hold bitcoin rather than gold or other hard assets, as cryptocurrencies can circumvent government-imposed capital controls.
Bitcoin increases in demand in Russia & Ukraine
These relative trends have been accelerated by the ongoing war in Ukraine. Bitcoin has found increased demand from Russia and Ukraine since the Russia-Ukraine war broke out. https://fortune.com/2022/02/18/ukraine-legalizes-cryptocurrency-bitcoin-russia-digital-assets/
Bitcoin held by funds at record high
US & Canadian Funds buying more Bitcoin
ByteTree shows the number of coins held by the U.S., Canadian closed-ended funds as well as the Canadian and European exchange-traded funds (ETFs) have reached a record high of 851,841 BTC – an increase of nearly 10,000 BTC in four weeks.
Crypto used to balance other assets
Institutional funds are treating crypto as one of the key asset classes despite the uncertain regulatory and infrastructure risk. Increasing attention is being paid to regulation, licensing and governance by various government entities to examine the potential use of digital assets for hedging purposes.
The current cryptocurrency market cap of $1.75T has the potential to catch up with gold market cap of $12.66T (which is currently 7.2x bigger). It's just the matter of time.
Chinese government steps in to repair property market
Chinese property market too volatile
For some time, Chinese developers have been given nearly unlimited credit which has resulted in property prices increasing tremendously.
Chinese President stops easy borrowing
Fearing uncontrollable unaffordability and unsustainable debt, China’s president has stopped easy to obtain credit by capping developers’ ratios of liabilities to assets, net debt to equity, and cash to short-term debt (known as the “three red lines”).
Evergrande, one of the world’s most indebted property groups, has defaulted on bonds since July 2021. Shimao Group, missed trust payments on February 24th. These companies have been indirectly placed under a high degree of government control to prevent a total collapse.
Chinese government is repairing the asset value
The state is already alleviating the crisis by buying up bad debt through state-owned asset-management companies (AMCs). Some of the bad debts have been quietly absorbed, as a buffer for the banking system. Major state bail-outs should not be necessary since the AMCs are drip-feeding support to these indebted companies.
This implies that despite the recent major price drop from all Asia/China High Yield Bonds(dividend yield of 9-12%) which mainly comprises of Chinese real estate portfolio, it should stabilise by Q2 2022 with a relatively healthy valuation for this asset class.
Crypto becomes helpful during Ukraine & Russia crisis
Loss of access to payment systems
Ordinary citizens have lost purchasing power as the ruble crumbles and their access to financial infrastructure such as the Swift system and payment giants,like VISA and MASTERCARD ceased their operations, leaving millions of users without a critical monetary gateway.
Crypto is a useful alternative
Blockchain, on the other hand, has enabled seamless peer-to-peer transactions without intermediaries, creating practically borderless assets. Such a decentralised financial ecosystem can prove helpful for millions of Ukrainians and Russians who have been deprived of a direct payment gateway.
Ukraine adopts Crypto
The creation of blockchain wallets by Ukraine is one of the first occasions in which the government of a recognized nation uses cryptocurrencies, joining El Salvador and Venezuela. Ukraine’s case marks the first government’s attempt to use it for a humanitarian purpose.
$60M Support for Ukraine flows in
According to Elliptic, Ukraine has received almost $60M in crypto assets from over 118,000 wallets. This also means that there will be more causes and foundations to conduct fundraising through a decentralised financial system and further increase cryptocurrency adoption.
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